Donald Trump has described himself as the “king of debt.” Then again, he also said he would eliminate the entire national debt — all $20 trillion of it — in just eight years. Then again, he also said exercise is bad for you, Alex Jones has a great reputation, and that he’d like to date his own daughter.
The lesson: It makes no difference what Trump says. Ever. He just talks, and it’s usually no more informative than demons opening their mouths to let giant swarms of desert locusts fly out.
But the CBO still has a sterling reputation, thank you very much, and it’s saying Trump’s recently enacted tax cuts are extremely dangerous.
From the Los Angeles Times:
The tax cuts championed by President Trump are helping push the nation toward an unprecedented level of debt, heightening the risk of another financial crisis, according to the nonpartisan Congressional Budget Office.
“The prospect of large and growing debt poses substantial risks for the nation and presents policy makers with significant challenges,” Keith Hall, director of the budget office, said in a statement.
The federal debt currently stands at about $15 trillion, or 78% of the size of U.S. economy. If current trends continue, it will roughly equal the size of the economy within a decade, the budget office said. The last time the debt burden hit that level was just after World War II.
The biggest problem in the coming decade stems from last year’s tax cut. It is estimated to increase the deficit by more than $2.3 trillion over the decade.
Whoops.
Even more scary, that $2.3 trillion shortfall assumes the tax law will remain as it is.
And that’s under an optimistic scenario. Under the tax law, individual income tax rates are slated to increase sharply at the end of the decade, while corporate taxes remain low. If Congress allows that individual tax hike to take effect, the tax cut’s long-term impact on the debt will begin to fade after the next 10 years.
But if Congress balks at that big tax increase — many members of Congress already have said they want to make the individual cuts permanent — the red ink would be even worse than projected, the budget office said.
The budget office did not offer a specific projection of the more pessimistic scenario, but the bipartisan Committee for a Responsible Federal Budget, an advocacy group, crunched the numbers and found that if the individual cuts were kept in place, federal debt would be twice the size of the nation’s economy, and annual deficits would exceed 13% of the GDP over the next 30 years.
This is the problem with enacting large fiscal stimuli when the economy is already firing on all cylinders. When the inevitable recession comes (probably
as a result of Trump’s own bottomless stupidity), policymakers looking to contain the damage will have few options left. Normally in a downturn, fiscal measures such as government spending and tax cuts can be undertaken to goose the economy. But if debt is already high and spiraling upward, the government might be handcuffed.
It could be especially bad if the recession comes before interest rates have returned to more traditional levels. The Fed lowered interest rates to essentially nothing after the 2008 financial crisis. If they’re already low when the next recession comes, the Fed will have few bullets left in its holster.
So, yeah, we may be enjoying a sugar high right now as a result of the Keynesian effects of the tax cut, but because of Trump and the GOP, the hangover promises to be that much worse. And even more troubling is the likelihood that the medicine cabinet will be bare when we really need effective remedies.
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