The economy boomed in the three quarters that followed last
year’s Republican tax reform, but economic news has become more mixed of late
with a topsy-turvy stock market and Mr. Trump’s tariff war beginning to affect
bottom lines and employment. Now comes more news about the deficit that should
rankle any fiscal conservatives who remain in Congress or the country at large.
The fiscal year for the US government ended in September and
the figures on the federal budget deficit are not good. In fact, even though
the US economy is booming, the deficit is the largest deficit run by the government
in six years. The deficit for the 2018 fiscal year was $779 billion, a 17
percent increase over the $666 billion deficit in fiscal 2017. The last time
the deficit was higher was in 2012 when Barack Obama presided over a deficit of
more than a trillion dollars.
The deficit is the difference between what the federal
government spends and what it earns. When the federal government spends more
than it receives in revenues, as it has every year since 1960
(with the exception of 1998), it must borrow the difference. Each annual
deficit is added to the mountain of federal debt which currently stands at more than $21 trillion.
Democrats were quick to blame tax reform for the exploding
deficit. A deficit of this magnitude in an economy this strong is historically
unprecedented,” Jason Furman, chairman of the Council of Economic Advisers in
the Democratic administration of President Obama and an economic policy
professor at Harvard University, told the Wall
Street Journal. “Undertaking permanent fiscal stimulus [through tax cuts]
at this stage of the economic expansion is contrary to all sound tenets of
economic policy.”
According to Treasury Department statistics, flat federal revenues
were part of the deficit problem. Total federal receipts were $3.329
trillion in 2018 compared with $3.316 trillion in
2017. FY 2018 included three months – October, November and December 2017 –
at higher tax rates. This means that the 2019 revenue picture looks even worse.
Under tax reform, withholding was lowered in February for
individual taxpayers. Despite this, tax receipts from individuals increased by
one percent. Tax payments by businesses fell more than 30 percent for the year,
however.
Flat revenue was not the only contributor to the rising
deficit. Federal spending also increased. Total outlays for 2018 were $4.108
trillion compared to $3.981 trillion in
2017. The spending increases were driven by rising interest costs paid on a
greater amount of federal debt as well as increased military spending, which
rose by six percent, and Social Security spending which increased by four percent.
Republicans argue that the tax reform is fueling economic
growth, which will eventually lead to higher tax revenues. Nevertheless, Kevin
Hassett, chairman of the Council of Economic Advisers, admits that spending and
the deficit are big problems.
“The deficit is absolutely higher than anyone would like,”
Hassett told Bloomberg
last week. “As you watch our next budget come out -- and you’ll start to see
things in the next few weeks -- then you’ll see a much more aggressive stance”
on spending issues.
For the past half-century, the only combination that
resulted in lower deficits was when a Republican Congress put the brakes on spending
by a Democrat president. The much-maligned John Boehner led the Republican
House to cut the
deficit in real dollars between 2012 and 2015 thanks to the sequestration.
Interestingly, once Republicans gained control of both houses of Congress in the
2014 elections, both spending and the deficit again started to climb. The same
combination of Republican Congress and Democrat president yielded the last
budget surplus in 1998.
It is perhaps ironic that the Republican deficit hawks would
preside over a blowout in the deficit. It is unsurprising, however.
Historically, the only thing the parties have been able to agree on is borrowing
and spending at ever higher levels and the problem seems to get worse when one
party controls both Congress and the White House.
Regardless of the outcome of the election, the deficit
problem seems unlikely to change any time soon. Unless federal revenues can be
increased or spending can be cut, the 2019 federal deficit is forecast to be on
the wrong side of a trillion dollars once again.
Originally published
on The
Resurgent
No comments:
Post a Comment