Over the past couple of months Republicans have passed or proposed three big budget initiatives.
- First, they enacted a springtime-for-plutocrats tax cut that will shower huge benefits on the wealthy while offering a few crumbs for ordinary families — crumbs that will be snatched away after a few years, so that it ends up becoming a middle-class tax hike.
- Then they signed on to a what-me-worry budget deal that will blow up the budget deficit to levels never before seen except during wars or severe recessions.
- Finally, the Trump administration released a surpassingly vicious budget proposal that would punish not just the vulnerable but also most working families.
.. Washington is full of professional centrists, whose public personas are built around a carefully cultivated image of standing above the partisan fray, which means that they can’t admit that while there are dishonest politicians everywhere, one party basically lies about everything.
News organizations are intimidated by accusations of liberal bias, which means that they try desperately to show “balance” by blaming both parties equally for all problems.
The Deficit Problem in a Chart
The most important thing to understand about the U.S. budget, Donald Trump or no, is illustrated by the nearby chart. Even with Mr. Trump’s modest increases, defense barely rises as a share of federal outlays. In 1989 when the Berlin Wall fell, defense was 26.5% of outlays. In 2019 it will be 15.6%.
Meantime, look at “payments for individuals,” which encompass such income transfers as Medicare, Medicaid, Social Security and food stamps, among other things. This category was 47.7% of outlays in 1989 and has steadily climbed to reach an estimated 69.2% in 2019.
.. Net interest on the federal debt soaks up another 7.4% of outlays for 2018, and that will rise with interest rates.
How Big a Bang for Trump’s Buck? (Wonkish)
I’m having a hard time figuring out exactly how big a stimulus we’re looking at, but it seems to be around 2 percent of GDP for fiscal 2019. With a multiplier of 0.5, that would add 1 percent to growth.
That said, I’d suggest that this is a bit high. For one thing, it’s not clear how much impact corporate tax cuts, which are the biggest item, will really have on spending. Meanwhile, unemployment is only 4 percent; given Okun’s Law, the usual relationship between growth and changes in unemployment, an extra 1 percent growth would bring unemployment down to 3.5%, which is really low by historical standards, so that the Fed would probably lean especially hard against this stimulus.
With Budget Deal, the G.O.P. Tosses Out the Economics Textbooks
the Pentagon, which has spent years complaining about spending restraints that were introduced in 2011, will get an eighty-billion-dollar increase in its budget for this year, and an extra eighty-five billion dollars for next year.
.. All told, the deal authorizes about three hundred billion dollars in new spending over the next two years.
.. Gross domestic product .. is currently about twenty trillion dollars
.. the G.O.P. tax bill will reduce tax payments by about a hundred and thirty-five billion dollars in the 2018 fiscal year, and by two hundred and eighty billion dollars in the 2019 fiscal year.
.. If you add it to the additional spending in the budget deal, you’ve got a pretty big “Trump stimulus.”
.. the over-all effect of the tax bill and the spending deal would be about 1.25 per cent of G.D.P. for this calendar year, and two per cent for the next.
.. the Obama stimulus of 2009 through 2011 .. totalled about two per cent of G.D.P. each year
.. Many economics textbooks say this is the sort of environment in which the government should be balancing its books, and perhaps even paying down deb
.. in 2011 prompted members of the Party to refuse to raise the debt ceiling, is purely cynical.
.. The Reagan Administration and the George W. Bush Administration both raided the public purse to finance big tax cuts, and left the deficit much higher than they found it. The Trump Administration is merely following suit.
.. “As long as there is still slack in corners of the labor market, then this kind of fiscal stimulus of the economy near full employment is a kind of test I support.”