Trump Has a Winning Hand, but Is the Deficit a Looming Disaster?
President Trump increasingly is showing a strong winning political hand, but shouldn’t we be alarmed about runaway national debt and the mushrooming deficit?
Following the State of the Union speech, Trump’s poll ratings hit a record 52% despite intense daily attacks and smears from the anti-Trump media and Democrats. Trump’s list of accomplishments in just two years can only be described as historic. More Americans are working than ever before in history. Jobs are at record highs for blacks, Hispanics and women. Manufacturing confidence at an all time high. Trump has replaced NAFTA and is negotiating the trade imbalances with China and Europe. Tariffs that Trump imposed a year ago on steel, aluminum, solar panels and washing machines have already created 11,000 new jobs. Job openings reached a record high of 7.3 million in December.
President Trump has triggered a true middle-class revival, while Obama previously shrugged his shoulders and lamented that middle-calls manufacturing jobs were gone forever. Trump recently signed a First Step Act criminal justice reform into law. And he continues to battle for the wall, despite full-blown resistance from leading Democrats who all previously supported the idea of secure borders.
His declaration of a National Emergency to get the Wall built has drawn the predictable amount of criticism and resistance, but it underscores Trump’s determination to fulfill a central campaign promise.
It now seems that the Mueller Russia collusion investigation is blowing up in the Democrats’ faces just in time for the kickoff of the 2020 election season. This comes with shocking new revelations of FBI/Deep State efforts to remove President Trump from office including a 60 Minutes interview with disgraced and fired FBI Deputy Director Andrew McCabe.
Meanwhile, racist Marxist, Muslim, gender-obsessed, anti-Semitic radicals have hijacked the Democrat Party. Trump’s potential 2020 challengers all appear to be seriously flawed. Some believe Kamala Harris used the Hollywood casting couch method to get into politics. Fake Indian Elizabeth Warren has been exposed as an outright fraud. Hillary is pretty much finished as her husband Bill slinks into obscurity in an era of #MeToo. Serial child groper Joe Biden is not only old hat, but he’s a white male, an anathema to much of the Democrat Party. Beto O’Rourke’s latest rally was drowned out by Trump rally music. A non-partisan watchdog group is seeking an ethics investigation of Kirsten Gillibrand. Vegan Cory (Spartacus) Booker now claims the planet can’t sustain people eating meat. Little Michael Bloomberg may spend some of his billions, but he has no appeal to voters. Over the hill socialist Bernie Sanders is just that, over the hill and not credible. Amy Klobuchar ranted against global warming as she announced her candidacy in a blizzard that almost obscured her. And speaking of farce, there’s Congresswoman Alexandria Ocasio-Cortez’s Green New Deal that features Democrats trying to explain the benefit of ending air travel and building railroads across oceans.
Clearly the political tide is now running in Trump’s favor. But what about the deficit? Are we headed for fiscal disaster while no one is watching? We conservatives beat that drum hard against Obama and Hillary. Trump was assumed by some to be a fiscal conservative who would make that an issue and fix the problem. But with all the other issues staring at us, the multiple threats of open borders, the disaster of our leftist-controlled education system, the threat from Islam, the multiple level threats from China, the tragedy of identity politics that has ripped open our society and threatens to destroy it, our slide toward socialism, the ongoing assault on Trump and his presidency by a badly corrupted deep state and the new morality of left wing America that condones chopping up baby parts for profit, the issue has slipped pretty far down on any list of concerns and priorities. We rarely hear about it now even as the deficit continues to balloon.
The national debt is now $22 trillion and climbing at a rate of $1 trillion a year. Michael Peterson, CEO of the Peter G. Peterson Foundation says,
“As we borrow trillion after trillion, interest costs will weigh on our economy and make it harder to fund important investments in our future. We already pay an average of $1 billion a day in interest on the debt and will spend a staggering $7 trillion in interest costs over the next decade.”
The Congressional Budget Office projects the budget deficit for the current fiscal year will be nearly $900 billion.
At his Rose Garden declaration of a national emergency to build a border wall along the Mexican border, President Trump said the U.S. will grow its way out of the $22 trillion national debt, rather than by cutting government spending or raising taxes. “It’s all about growth,” said Trump. “Growth will straighten it out.”
In fact, the federal government collected a record $1,665,484,000,000 in individual income taxes in calendar year 2018. Total US government revenue is estimated to be $3.422 trillion for Fiscal Year 2019 . But despite these all-time record government revenues there is scant evidence of how effective Trump’s plan will be.
The problem is the same as it’s always been – government spending. To a large degree both parties are to blame. All politicians are drunk on spending. Members of Congress are rated by their constituents on how much federal money they bring back into their districts from Washington. In the early 1960’s my former government professor at Cornell, Ted Lowi, defined Democrat strategy as "Spend, spend, spend, elect, elect, elect." In fact all of the political class is indebted to spending as a way of staying in office and retaining power. And despite the rising debt tide, inflation remains under control. The stock market is strong. Americans have never been more prosperous.
Spending is largely broken into two categories, which even record high government revenues can’t keep up with. Some programs are on auto-pay such as Medicare and Social Security. Other programs that are in the category of discretionary spending, include non-Medicare healthcare spending, the military, housing, welfare, intelligence and transportation. Federal student loan programs and mortgage programs are major factors. Spending for illegals is in the billions. It's one of the reasons the wall is so important. There is also plenty of old fashioned pork as well as leftist supported programs including Planned Parenthood, NPR, funding for the arts and other programs the government has no business being involved with.
A major unsettling issue in failing to address the nation’s borrowing is that it weakens the United States while strengthening China, the largest foreign holder of U.S. debt. China held 12.1 percent of public debt at the end of February 2018. So, if the 2011 estimates hold and China holds the same proportion of debt throughout the year, it receives about $74.4 million per day, a major contribution to its military budget.
President Trump told his cabinet advisers late last year to seek a 5 percent reduction in their budgets. That would possibly reduce the deficit by about $70 billion, a small slice of $900 billion.
A good friend of mine who is a former Dow Jones financial reporter argues that tax cuts stimulate the economy and help somewhat in paying the ensuing larger deficit down. Likewise, he argues, deficit spending stimulates the economy and helps somewhat in paying down the ensuing deficits as long as that deficit spending is investment-focused as opposed to purely consumption focused.
Generally, Trump has been indifferent to deficit issues. Three years ago, candidate Trump suggested the United States could borrow money to shore up the economy and simply ask for discounts on the debt later. He later said he was referring to buying back existing debt at a discount if interest rates went higher, lowering the nominal value. This is something the government already does. But Trump also was quoted as saying, “This is the United States government… you never have to default because you print the money.”
So, are we facing a pending fiscal disaster? In the 1980s, when the federal deficit was much smaller than it is today, Chairman of the Federal Reserve Paul Volcker repeatedly told Congress the deficits were “going to come back and bite you.” He couldn’t say just when, of course, and arguably, 30 or so years later, they never have.
A big reason is because the U.S. remains the world’s reserve currency country. It is far easier for us to finance our deficits than is the case for other countries – a mixed blessing you might argue. This has enabled us to live beyond our means and to keep the issue away from the attention of voters.
Can Trump’s revenue growth strategy reduce the deficit? Only if progress is made in cutting spending rates. Frankly it’s easier to believe Congress will keep spending because it’s the best way for members to get re-elected. And despite economists’ threats of fiscal doom, the economy is thriving as never before. Volcker’s 35 year old question remains, when will the deficit come back to bite us?
Graphic credit: CafeCredit
Frank Hawkins is a former U.S. Army intelligence officer, Associated Press foreign correspondent, international businessman, senior newspaper company executive, founder and owner of several marketing companies, and published novelist. He currently lives in retirement in North Carolina.