Donald Trump long touted himself as the “King of Debt” and he appears intent on proving he can bring the once fiscally-conservative GOP over to his way of thinking. Trump knows that …
Donald Trump long touted himself as the “King of Debt” and he appears intent on proving he can bring the once fiscally-conservative GOP over to his way of thinking.
Trump knows that continuation of modest economic growth is his best hope for re-election, and he doesn’t really care if that growth is based on government-led, debt-fueled pump priming. While you won’t hear President Trump tout this statistic, he has certainly made his mark in Washington in one way— he has generated the largest expansion in government spending, federal deficits, and federal debt during any period of economic expansion in U.S. history. Trump has increased the deficit by 50 percent since he took office three years ago— in the apparent hope that all that additional cash sloshing around the economy would boost GDP growth, at least in the short term.
Despite his hyperbole on the economy, Trump’s pump-priming has actually been remarkably ineffective. That’s because it focused mostly on tax cuts for business and the already wealthy. Trump’s approach did virtually nothing to fuel economic growth, as the data attests. Quarterly GDP growth in the last four years of the Obama administration averaged 2.4 percent. Can you guess the average GDP growth in the first three years of the Trump administration? That’s right. It’s 2.4 percent. For all the bluster and big deficits, Trump has merely delivered three more years of Obama-level economic growth. Sorry folks, the data is clear.
Trump’s Republican supporters seem happy to go along. Indeed, the latest deficit projections from the Congressional Budget Office (CBO) barely created a ripple last month in Republican circles.
According to the CBO, the 2020 deficit is almost certain to top $1 trillion, and will average $1.3 trillion dollars a year from 2021 to 2030. That, of course, assumes that the policies pushed by President Trump and Congressional Republicans remain in effect.
This is extraordinary when considered in a historical context. While deficits invariably spike during recessions as the government faces more spending for things like unemployment benefits, combined with lower tax revenues as workers lose jobs or face reductions in hours, deficits normally fall during periods of economic expansion. That’s because demands for government safety net spending typically decline and tax revenues generally increase as businesses and individuals earn more money.
On average, the federal deficit has run about 1.5 percent of GDP during periods of economic growth. While the economic expansion under President Obama had resulted in a steady decline in the federal deficit, President Trump reversed that trend. Despite a continuation of the economic expansion that began under Obama, Trump’s spending increases and big corporate tax cuts have Washington once again awash in red ink. This year, the federal deficit is expected to reach 4.6 percent of GDP, and the CBO projects it will reach 5.4 percent as early as next year. These are deficit levels previously unheard-of during economic expansion.
There are certainly times when it makes sense for government to run deficits, even big deficits. Were the government investing in repairing the nation’s crumbling infrastructure, for example, or to combating climate change by spending on energy conservation and renewable sources of power, such spending could be justified because it will yield economic dividends by creating jobs, mitigating future risk, and putting the entire economy on a more sustainable footing. Were the government running higher deficits to provide free or affordable higher education for young people, that’s an investment that pays off in the long term because it makes our workforce more productive.
Sadly, that’s not the kind of investment we’re seeing under the Trump administration. Instead, we’re spending on wasteful military hardware that even the Pentagon’s own generals say they don’t want or need, or on a southern border wall that is both unnecessary and ineffective.
At the same time, Trump’s massive corporate tax giveaway has simply fueled the already disastrous income inequality that exists here in the U.S. While Trump and his GOP allies promised those tax cuts would prompt a rise in business investment, the exact opposite has happened. Business investment has actually declined since the tax cuts were implemented. It’s just one more example of the failure of the GOP’s supply side economic theories.
Perhaps the worst part about these policies is that they leave America less equipped to respond to the next economic downturn, which is likely to arrive sooner rather than later. When we’re looking at $1.3 trillion deficits during economic expansion, what happens the next time the economy hits the skids? The U.S. could quickly see annual deficits spike to two trillion dollars or more. Is there any limit to deficits under this president? Apparently, the Republicans have decided the answer is no. The GOP has become the Party of Trump and, like Trump, the Republicans have also become the Party of Debt.