Brief #26—Economic Policy
During his 2016 presidential campaign, Donald Trump frequently touted the importance of balancing the national budget, promising to do exactly that.
The rally cry of “fix the debt” is hardly a new campaign bedrock for Republican party members. In the years since the National Debt Clock was placed on a New York City building in 1989 by real estate mogul Seymour Durst, GOP leaders have often used it as a tool in their campaigns. During the 2012 Presidential Election, Republican candidate Mitt Romney and his running mate Paul Ryan made use of a fake national debt clock to rouse voters. Donald Trump seemed be prioritizing the national debt problem during his campaign, promising to eliminate the budget deficit.
Like so many of the promises he made before being elected, though, no progress has been made in the area of reducing the debt or balancing the budget. Rather, we have seen the opposite outcome take shape. In the past fiscal year, the Trump administration has added $1.5 trillion to the national debt. A budget deficit is created when revenue is outpaced by government spending, a trend that has proven consistent for the U.S. Ultimately, such a trend will often lead to an increase in a country’s national debt, which occurs when a government borrows considerable funds to cover this deficit. Total gross debt today totals more than $21 trillion, coming out to roughly $65,000 for every citizen. When the National Debt Clock was erected, it was just below $3 trillion, which came out to $12,000 per person. It has been reported that by the end of 2018, the debt held by the public will have exceeded $127,000 per household.
All this adds up to an economic milestone. If things continue to progress in this way, the end of 2018 will see the U.S.’ debt held by individuals, financial, institutions, foreign countries and others reach a number greater than the debt held by all American households. This includes all debt from student loans, credit cards and mortgages. Analysts at J.P. Morgan have reported that such a phenomenon would be the first in modern history.
When it comes to the national debt, it is common for economists to focus on the debt held by the public.
This makes sense, as in the short-term, it is often easier to be concerned with the money that is owed to creditors by the U.S. government than the intergovernmental debt, which consists of funds owed to one government agency by another. While both parts of the national debt are important, the former effects the public more. In past times of sufficient economic growth, the government has found ways to reduce the national debt, as President Trump promised. His inability to do so, though, indicates that the economic growth he has touted so highly and claimed responsibility for is superficial and far from sustainable.
Many economists indicated the tax breaks that President Trump has given to those in the highest income bracket would give way to further fiscal problems. As recent events have showed us, all such predictions were correct. Despite the GOP claim that these tax breaks would increase spending by the private sector, that has not proven to be the case. Even before the tax breaks, though, most of the problems regarding the U.S. economy had more to do with revenue than spending, which holds true to this day. It should also be noted that this is not the first time tax cuts have proven problematic for the U.S. in matters regarding the national debt. During George W. Bush’s years in office, the tax cuts he implemented gave way to a spike in debt, as did the wars in Iraq and Afghanistan. When further poor fiscal policies sent the U.S. into the Great Recession of 2009, the national debt increased even more.
All of this, combined with the Trump administration’s increased military spending has led the U.S. to a place of extreme economic vulnerability. Recent years have seen the U.S. government continue its cycle of borrowing money but no system of borrowing can be sustainable in the longer-term. When it comes to fiscal matters, borrowed money tends to amount to borrowed time. Ultimately, this will likely force the U.S government to consider scaling back safety-net programs such as Social Security and Medicare. While this approach is often favored by the Republicans, Democrats often seek to resolve monetary and budget related matters by increasing taxes on America’s wealthiest citizens and corporations. The people who will pay the price for the poorly designed fiscal policies of the Trump administration will likely depend on who holds office when the current debt bubble bursts.
The last time economists became concerned with a debt bubble, the U.S. saw the stock market crash and the Great Recession begin. The cost of debt is high for both investors and consumers and as a nation, we cannot to ignore it.
- The Center on Budget and Policy Priorities is a progressive research organization dedicated to providing research on budget related matters and helping restore fiscal responsibility.
- The Joint Center for Political and Economic Studies is a public policy think tank that conducts research and analysis on economic policy related matters.
- The Center for American Progress is an independent research organization that provides research and analysis on economy related matters.
This Brief was submitted by USRESIST NEWS Analyst Samuel O’Brient. Contact Sam@usresistnews.org
Photo by Ruth Enyedi