The expansion is nine years old. An ill-timed end of fiscal stimulus, a corporate debt bubble and the trade war are the things that could most easily end it.
But at the same time, mainstream macroeconomic models have the economic lift from tax cuts fading sometime between 2020 and 2022. That means the Fed could be raising interest rates to slow the economy just as tax policy is also working to slow the economy.
Both affect the economy with unpredictable lags, so it could prove hard for the Fed to set policies that can prevent both overheating in 2019 and 2020 and a downturn in 2021 and 2022.
.. Ben Bernanke put it more colorfully at a conference in June. The stimulative benefit of the tax cut “is going to hit the economy in a big way this year and the next year,” he said. “And then in 2020, Wile E. Coyote is going to go off the cliff.”
.. Corporations have loaded up on debt over the last decade, spurred by low interest rates and the opportunity to increase returns for shareholders.
.. The rise in debt loads overseas, especially in emerging markets, is even greater
.. Essentially, businesses have been in a sweet spot for years, in which profits have gradually risen while interest rates have stayed low by historical measures. If either of those trends were to change, many companies with higher debt burdens might struggle to pay their bills and be at risk of bankruptcy.
.. The 2020 train wreck narrative could intersect with the corporate debt boom. If inflation were to get out of control and the Fed raised interest rates sharply, companies that can handle their debt payments at today’s low interest rates might become more strained. Moreover, with federal deficits on track to rise in the years ahead, the federal government’s borrowing needs could crowd out private borrowing, which would result in higher interest rates and even more challenges for indebted companies
How Republican Hypocrisy Lifts Social Democrats
By its astoundingly cynical approach to deficits and debt, the G.O.P. has opened the door to an expansive left.
That Ms. Ocasio-Cortez’s brand of expansive, expensive socialism has found this moment so conducive to its popularity is no accident. Its rise has been uniquely fueled by President Trump, who as both a businessman and a politician has embodied a cartoon version of rapacious capitalism.
.. But it has also been emboldened by more conventional aspects of the Republican agenda, in particular the party’s astoundingly hypocritical approach to debt and deficits.
.. Under Mr. Obama, Paul Ryan, the outgoing speaker of the House, repeatedly blasted the president for declining to manage the federal budget. In 2012, he told the Republican National Convention that “in this generation, a defining responsibility of government is to steer our nation clear of a debt crisis while there is still time.”
.. A year earlier, Senator Mitch McConnell called the federal debt “the nation’s most serious long-term problem.” Over and over, Republicans cast Mr. Obama’s rising deficits as a profound social menace, a form of budgetary terrorism that threatened the country’s future.
.. The Republicans’ pretense to deficit hawkery put pressure on Democrats to adopt a similar stance. Whether or not most Democrats actually cared about the deficit, their leaders tended to act as if they did. So the health care law was structured, with the help of some gimmickry, to score as an overall reduction to the federal deficit, and Mr. Obama, in speeches, singled out entitlement spending as the biggest driver of the long-term debt and convened a bipartisan committee to recommend deficit-reduction strategies.
.. Nor do Republicans appear ready to reverse course. President Trump recently proposed a $12 billion bailout for farmers hurt by the trade war he started, and senior White House advisers have called for a second round of tax cuts that would make permanent the individual rate cuts in the first tax law, at a cost of roughly $600 billion.
Reports suggest the administration is mulling a unilateral change to the taxation of capital gains that would add another $100 billion to the deficit. Another giant spending bill is on the horizon.
.. The party’s hypocrisy on the budget is not new. After Bill Clinton dramatically shrank both deficits and government spending as a share of the economy, George W. Bush took office and proceeded to dramatically increase both.
.. Through their actions, they have proven that they cared about the deficit primarily for its usefulness as a political cudgel, an easy way to curtail Democratic policy goals.
.. .. Think tanks from across the political spectrum estimate a Bernie Sanders-style single-payer system would cost around $32 trillion over a decade, and while that might be less, overall, than the current partially private system, the challenge would be to finance the enormous increase in government spending on health care.
.. both her errors and answers seemed to suggest that finding plausible ways to finance the full cost of her policies is not exactly at the top of her agenda.
.. there is already a movement within liberal policy circles arguing that debt and deficits are far less important than most lawmakers have assumed.
.. although Republicans will surely attack the new class of Democratic Socialists and their policies as debt-increasing budget busters — that is, after all, what Republicans do — their own actions will ensure that those criticisms have no real authority. Their opposition to the socialist agenda will be hollow, because they helped make that agenda possible.
How the Trump Tax Cut Is Helping to Push the Federal Deficit to $1 Trillion
Corporate income tax collections are near a 75-year low, as a share of the economy, after a new law reduced rates and allowed companies to deduct investments immediately.
In the trough of the Great Recession in 2009, as companies laid off hundreds of thousands of workers each month, the amount of corporate income taxes collected by the federal government plunged by almost a third. It was the largest quarterly drop since the Commerce Department began compiling the data in the 1940s. No other period came close.
Until this year.
In the first half of 2018, corporate tax collections dropped to historically low levels as a share of the economy, according to data from the Bureau of Economic Analysis. That is pushing up the federal budget deficit much faster than economists had predicted.
.. The reason is President Trump’s tax cuts. The new law introduced a standard corporate rate of 21 percent, down from a high of 35 percent, and allowed companies to immediately deduct many new investments.
.. The growing deficit has forced the Trump administration to adjust its claim that the tax cuts would pay for themselves by generating increased revenue from faster economic growth. The White House’s Office of Management and Budget said this month that it had revised its forecasts from earlier this year to account for nearly $1 trillion of additional debt over the next decade — almost $100 billion a year in additional deficits, on average.
.. That is hindering the government’s ability to stabilize its balance sheet before the next recession hits or maintain spending programs that could help blunt the pain of future downturns. Economists equate that process to refilling the city water tower during periods of heavy rain, in order to prepare for the next drought. It’s not happening this time around.
.. Over time, that repatriation should generate tax revenue.
But, as Ms. Clausing noted, companies can spread the bill over the next eight years, which is why we’re not seeing that money lifting corporate tax payments in the near term.
.. provisions of the new tax law, which allow companies to write off new investments immediately, could prove more popular than some forecasters anticipated.
.. Multinationals could also be shifting money — on paper, basically — into the United States solely to take advantage of the expensing provision and reduce their American tax bills.
It’s also possible, but far too soon to tell, that changes to multinational taxation, including what is considered a de facto minimum tax on certain income earned overseas, will not raise as much revenue as expected.
Kudlow Falsely Claims Deficit Is ‘Coming Down Rapidly’
Three sources of government data contradict Friday’s claim by the White House economic adviser, showing instead that the federal budget deficit is actually increasing.
Mr. Kudlow observed the six-month anniversary of President Trump’s tax cuts with an incorrect claim, saying the federal budget deficit is “rapidly” decreasing. Three sources of government data show otherwise.
An April report from the Congressional Budget Office projected that the federal deficit will rise from $665 billion in fiscal year 2017, which ended on Sept. 30., to $804 billion during the 2018 fiscal year.
.. Mr. Kudlow subsequently tried to amend his remarks, telling several news outlets that he was referring to future budget deficits, which he believes will come down as a result of economic growth and investment.