The Slow Erosion of the American Economy Goes into A Trump Led Hyper-Plunge

 

Homeless encampment in Portland, Oregon

The Slow Erosion of the American Economy Goes into A Trump Led Hyper-Plunge

Unsustainable

“Yesterday felt like we were somewhere along the line of a ‘death by a thousand cuts’ with regards to the U.S. fiscal situation. Hard to know where in that thousand we are but probably much nearer a thousand than at zero even as yesterday saw an initial sell-off reverse as the session went on… At the end of the day the loss of the final U.S. triple-A rating late on Friday night doesn’t change anything much immediately but it keeps the drip, drip, drip of poor fiscal news building up against the debt sustainability dam in the background.”

Deutsche Bank’s Jim Reid in Fortune Magazine, May 19th.

There are so many miscalculations about the American economy over the years, assumptions about what must change while ignoring many of the elements that Congress won’t change. After his trade and DOGE “efficiency” efforts have created the most unstable stock market and rapidly rising interest rates in recent memory, Donald Trump fabricates numbers reflecting falling costs of ordinary products that no one anywhere in the United States can find. “Heading into this year, many analysts argued that one of the biggest risks to stocks would be a jump in Treasury yields if Republicans passed tax cuts without offsetting their cost.” Sam Goldfarb for the Wall Street Journal, May 19th.

Oh, and treasuries are reflecting those higher yields already, a fact which is already rippling through the consumer debt marketplace. As Diana Olick, writing for the May 19th NBC News reports: “After several weeks of sitting stagnant, mortgage rates surged higher Monday following Moody’s decision to downgrade the U.S. credit rating… The average rate on the popular 30-year fixed loan hit 7.04% on Monday, according to Mortgage News Daily. That is the highest level since April 11.”

Trump “also” wants to reduce taxes. Federal income taxes are hardly the highest ever charged. In 1944, for example, the highest tax bracket, for income over $200,000, we 94%. Over the next three decades, the top federal income tax rate remained high, never dipping below 70 percent until, until the Economic Recovery Tax Act of 1981 slashed the highest rate from 70 to 50 percent and indexed the brackets for inflation. Compared to most of the developed world, which the Republicans decry as “socialism” (a dramatic misuse of that word, which means government ownership of wealth, land and industry), our tax rates for the rich have been modest.

Programs like Social Security, Medicare and Medicaid are social benefits, often earned by taxpayer contributions, but are no more “socialism” than public primary and secondary schools. One of the great failures of “denial financing” is the rash assumption that the basis for funding programs like Social Security, originally premised on working Americans supporting retirees, would never change. But in what some have called the “graying of America” combined with the lowest US birth rates ever recorded (well below replacement numbers), that 45 workers-per-retiree ratio right after WW2 has fallen to under 3 active workers-to-retiree.

But we never see that reality accepted by Congress! Republicans’ vocabulary describing these GOP-hated programs ranges from “entitlements,” “giveaways” and “creeping socialism.” Though Republicans fight like cornered badgers against resorting to the general tax base in support of these most popular programs, they are completely focused on simply cutting the benefits. And as that disastrous “Big Beautiful” income tax bill forces its way out of a constipated Republican-led House of Representatives, all in order to pass Donald Trump’s pledge of massive tax cuts that almost entirely benefit corporations and mega-wealthy individuals, in a most populous way, he demands that Social Security, Medicare and mostly what is becoming a GOP sacrificial lamb, Medicaid, cannot be touched. Yet everyone knows that, outside of defense spending and paying the massive interest load on our national debt, without truly significant cuts to these programs, there is no way to implement those tax cuts without eviscerating them.

As Donald Trump continues to alienate most of the rest of the world, led by his trade/tariff wars, basically the “lenders” who buy the deficit’s underlying treasury notes, the global economy, are beginning to push back, demanding even higher interest returns on the perceived higher risk that rising deficit carries: “Economists have criticized politicians’ plans to reduce America’s national debt as too little, too late. But analysts are warning that the issue is now coming home to roost, with the once unshakeable confidence in the United States’ fiscal future beginning to erode.

“America’s national debt, which currently stands at more than $36.2 trillion, is increasingly rising on economists’ agendas. Their fear is that as the nation’s debt burden increases, alongside the interest payments to service the debt, the economy will not grow fast enough to sustain the spending… Such fears were reflected in a Moody’s downgrade of U.S. credit [mid-May] from Aaa to Aa1. Moody’s justified: ‘While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics.’” Eleanor Pringle, writing for the May 20th Fortune.

As House GOP demagogues scream about those non-working recipients accessing Medicaid as their de facto healthcare provider, they forget that the majority of working age individuals who rely on Medicaid are in fact employed. They just don’t make enough to afford insurance. The majority of those on Medicaid (the GOP’s primary target) live and work in red states. If the GOP succeeds in passing their proposed federal budget, between 8 and 13 million Americans will lose any healthcare. In fact, even a shallow dive into which states and which workers benefit most from the Biden era infrastructure and energy bills (which the GOP wants to repeal) tells you that Republicans seem to be going out of their way to screw their own constituents. This disproportionate pain will fall heavily on MAGA land:

“Republicans have described the ‘big, beautiful’ megabill they’re currently attempting to pass as a way to end ‘Green New Deal–style waste’ and ‘limit government spending to what actually helps Americans,’ ‘according to Brett Guthrie [R/Ky], the House Energy and Commerce Committee chair. The House’s Ways and Means Committee put its plans to ax the Inflation Reduction Act’s climate and energy programs under the heading ‘Working Families Over Elites.’ The class warfare–style language is familiar. Over the last several years, the right has reliably leveraged its faux populism against Biden’s climate and energy measures: Tax cuts for the rich are ‘pro-growth, pro-family, and pro-America,’ while the Inflation Reduction Act, or IRA, is ‘corporate welfare for progressive special interests.’

”They’re lying about the content of their megabill, and they’re plain wrong that climate and energy spending benefits only the wealthy. The most bizarre thing about the GOP’s war on alleged climate elites getting rich off the IRA, however, is that the main beneficiaries of Joe Biden’s trademark legislative achievement have actually been Republicans. Nearly three-quarters of investments spurred on by that bill have flowed to states that voted to make Trump president; two-thirds of those funds have come in the form of private-sector investments incentivized by the Inflation Reduction Act’s tax breaks for zero-carbon energy, advanced manufacturing, and more. This week, as House Republicans decide how quickly and thoroughly to dismantle the so-called ‘green new scam,’ the results will signal how committed GOP politicians are to snatching from their own constituents.” Kate Aronoff, writing for the May 20th New Republic.

This notion of cutting taxes to promote growth is an oft-repeated Republican fallacy that sounds good (incent the “job creators”) but has never ever worked. Trump’s 2017 cut in corporate taxes is the latest proof of that fallacy. Trump is instead cutting the most effective job creator this nation has ever known: quality education. Trump’s proposed tax cuts, under even the most conservative estimates, will add $3-5 trillion to our federal deficit. 

I’m Peter Dekom, and that “a rising tide will float all boats” is in fact “a rising tide will float all yachts.”