Republicans – The New Deficit Junkies

Because you know I'm all about that base
'Bout that base, no trouble
I'm all 'bout that base, 'bout that base, no trouble
I'm all 'bout that base, 'bout that base, no trouble
I'm all 'bout that base, 'bout that base 

Sorry Meghan Trainor, just a little spelling change

The GOP had a unique opportunity in 2018; with both houses of Congress and the presidency firmly in Republican hands, they could pass tax-slashing legislation that really benefited the richest in the land – the “Tax Cuts and Jobs Act”  effectively lowering federal corporate tax from 35% to 21% – and increase defense spending (plus 12%) on the biggest ticket items without the slightest risk of losing a Congressional vote. In bed and well under the covers with the lyingest president in American history, they could justify their bill by making up slogans and repeating them often enough until their constituents actually believed the falsehoods. They learned from the most brazen of their party. 

Tax cuts for the rich are “job creators.” Rich people always take big tax windfalls and hire people to grow their businesses. Money inserted at the top of the economic ladder will “trickle down” and explode our already mega-successful level to new heights. The Tax Cuts and Jobs Act would infuse so much new investment capital into the system, create so many new jobs, that it would pay for itself and not increase the deficit. Donald Trump has accomplished more in two years than any other president in history. Every single sentence in this paragraph above is completely false! And still, the majority of the GOP’s base (it no longer belongs just to The Donald) believes every word.

While around 6% of the net economic windfall generated by the Tax Cuts and Jobs Act was deployed as new investment capital, that tiny effort didn’t budge the growth needle. In fact, GDP growth numbers have recently been rejiggered… downwards! A tad was paid out to shareholders as dividends, but the vast majority of the windfall, at least three quarters of a trillion dollars’ worth, was used by corporate America for stock buybacks, which in today’s world is a pretty ineffective use of capital, particularly in 2018 right after the tax reform act passed and the stock market exploded. The only jobs that grew were of overpaid financial advisors who helped implement those buybacks. For more details on the inefficiency of such stock buybacks, please reread my February 27^th blog, Are We Tired of Losing Yet? The stock market has long since gotten over any positive spin over that tax cut.

The federal deficit increased by $672 billion dollars in the year (2017) before the Tax Cuts and Jobs Act was passed but ballooned to $1.271 trillion dollars in 2018. What? You mean that Tax Cuts and Jobs Act did not pay for itself? But that was only the first year. Surely, by 2019 that trend was going to reverse. Not exactly. In fact, that deficit is actually accelerating now that the full impact of that tax reform act, a permanent reduction in corporate taxes, has settled in as the new normal.

“The federal budget deficit ballooned rapidly in the first four months of the fiscal year amid falling tax revenue and higher spending, the Treasury Department said Tuesday, posing a new challenge for the White House and Congress as they prepare for a number of budget battles… The deficit grew 77% in the first four months of fiscal 2019 compared with the same period last year, Treasury said… The total deficit for the four-month period was $310 billion, Treasury said, up from $176 billion for the year-earlier period.

“‘It’s big tax cuts combined with big increases in spending when they already had big deficits,’ said former Senate Budget Committee Chairman Kent Conrad (D-N.D), whose time in the Senate ended in 2013. ‘So guess what, it’s craziness!’

“When Republicans seized control of the House of Representatives during the Obama administration, lawmakers and White House officials embarked on a number of strained negotiations to try to reduce the gap between spending and tax revenue. During the Trump administration, there have not been any similar discussions, and President Trump has largely pushed for an agenda of tax cuts and spending increases that has grown the deficit markedly.

“Tax revenue for October 2018 through January 2019 fell $19 billion, or 2%, Treasury said. It noted a major reduction in corporate tax payments over the first four months of the fiscal year — a decline of nearly 25%, or $17 billion… As part of the 2017 tax cut law, the tax rate paid by corporations was lowered to 21% from 35%... Spending, meanwhile, increased 9% over the same period.” Los Angeles Times, March 6^th. 

This administration and the Party that voted for all these inane programs may be the most economically incompetent in modern American history. As taxpayers were grousing that their refund checks were much smaller than expected, GOP congresspeople were wondering how to slash social programs benefiting most of us (Social Security, Medicare, SNAP, Medicaid, etc.) to pay for the giveaway to the rich. Even Trump knows that would be political suicide. That deficits from wildly unbalanced budgets and tariffs represent GOP apostasy seem to be simply swept under a nationalist/populist rug. Fiscally conservative Republicans pretty much have no further representation in Congress. Not that these policies particular engender Democratic zeal. 

But this soaring deficit is one of several elephants in the room, from the impact of Brexit, Trump’s total failure in his North Korean and Middle Eastern peace efforts, the resonant damage from China’s sputtering economy and out-of-control debt to the unknown consequences of Trump’s tariff wars. No one in Washington seems to know what to do about this embarrassingly failed tax cut. It does get worse:

“The ballooning deficit comes as interest rates are expected to begin rising, driving up the cost of borrowing money. The U.S. is projected to spend $383 billion on interest payments for its debt this year, and that will rise to $581 billion in 2022, according to the Congressional Budget Office.

“There has been a total breakdown in Washington over how to address the budget deficit. The White House has walled off the popular Medicare and Social Security programs from any proposed cuts, with Trump saying it would be too politically unpopular to pursue changes to programs used by tens of millions of Americans.

“Democrats are also split over how to proceed. The ranks of fiscal hawks have dwindled, and a newer, vocal wing of the party has called for more deficit spending to finance social programs. Some in that wing argue the debt is less pressing than other social maladies, such as poverty or inadequate healthcare coverage, while others argue the debt is of little consequence at all.

“Instead of trying to resolve their differences, the White House and some Democrats are seeking to make the 2020 elections a referendum on economic policy, suggesting neither side is looking to reach a compromise in the coming months… But the White House and Congress must reach an agreement on a new spending package by Sept. 30 or face another government shutdown… Policymakers must also reach an agreement by this fall on raising or suspending the debt ceiling, as the government will no longer be able to borrow money to cover many payments if Congress doesn’t act.” LA Times. “Attention all hands, will the helmsman and the navigator report to the bridge, immediately!”

              I’m Peter Dekom, and the best proof of our failed educational system is the vast quantity of high school and college graduates who believe that all these GOP efforts have been successful and are good for the overall economy.