As a candidate for president, Donald Trump made some bold predictions about deficits. He said the federal budget would be balanced ?relatively quickly.? He also pledged to reduce the trade deficit, promising to withdraw from trade deals he saw as disadvantageous to his ?America First? strategy. Both shortfalls have gone in exactly the opposite direction.
On Wednesday, the U.S. Department of Commerce revealed that the nation?s trade deficit last year grew to $891.2 million, the highest ever recorded, and driven in large measure by the $419 billion gap with China. The budget deficit, meanwhile, is up 77 percent for the first four months of the budget year for a total of $310.3 billion compared to $175.7 billion one year ago. And that is on top of Fiscal 2019?s total budget deficit of $985 billion, which itself was higher than the previous year?s $833 billion, according to Treasury Department statistics.
The cause of the worsening budget shortfall is clear enough. The $1.5 trillion Republican tax cut has meant Washington has collected substantially less in taxes from individuals and businesses. Meanwhile, federal spending has continued to grow. It doesn?t take a top-notch economist to recognize that less income plus more spending equals red ink. It?s Check-balancing 101, and perhaps the 248th example of the utter wrongfulness of the core belief of supply side economics that lower taxes lead to balanced budgets.
U.S. federal deficit has ballooned 77 percent so far this fiscal year
Yet how strangely silent the Republican deficit hawks are these days. The first quarter budget deficit may not be a record, but the fiscal year total is clearly headed past the $1 trillion mark, particularly as economic growth slows, as most forecasters predict. While that won?t exceed the largest ever ? the $1.4 trillion recorded in 2009 when the Great Recession hit ? it?s clearly within hailing distance of that figure.
What?s worrisome is not merely that there?s a large budget deficit but that, economically speaking, this is exactly the time ? low unemployment, relatively low interest rates, a rising stock market and a healthy 2.9 percent growth rate ? when deficits should be in decline. What happens when the U.S. economy goes into a major correction, let alone a recession, and the normal tools available to lessen the impact like deficit spending or substantially reduced interest rates or even tax cuts just aren?t available? At some point, U.S. borrowing is going to reach a level where the payment on the national debt, which last month crossed the $22 trillion mark, is too much to handle.
THE TRADE deficit is less concerning from an economic standpoint but more illustrative of how misleading President Trump?s trade rhetoric has been. The tariffs he?s imposed on foreign made goods, from steel and aluminum to washing machines, haven?t reduced the trade imbalance. Outside economic forces are not so easily overcome. And there are all kinds of adverse impacts to trade wars that disadvantage U.S. farmers who are getting hit by retaliatory tariffs and other domestic producers including automakers who relied on foreign steel and aluminum.
Needless to say, if anything like this were happening while Barack Obama was in the Oval Office, Republicans would be setting their hair on fire and threatening to refuse to raise the debt ceiling. As it happens, Treasury Secretary Steven Mnuchin already has been forced to take measures to work around the recently-reimposed debt ceiling (like temporarily not paying into civil service retirement funds). In a letter to Congress, Secretary Mnuchin asked for the debt ceiling to be raised. How will the GOP respond, given that many are still smarting from the backlash the 35-day partial government shutdown over border wall funding caused them? Experts believe they have a few months to take action before Mr. Mnuchin runs out of stop-gap fixes.
That?s not to suggest we?re against raising the debt ceiling. We are not. That would be like refusing to pay one?s credit card; it only makes matters worse. What we support is a return to rational conversation about federal spending that recognizes priorities have to be set, spending limits imposed and tax revenues increased. It can?t be an all-or-nothing soak-the-rich taxes or budget cuts that gut vital social welfare programs. Will President Trump acknowledge reality? Do we even have to answer that question? That leaves it up to Congress, which hasn?t exactly demonstrated a lot of leadership on budgetary matters, let alone trade tariffs, including the 2017 tax cut that has mostly made matters worse. One can only hope the GOP deficit hawks ? and some Democratic ones, too ? will wake up now that their services are really needed.
