The US Deficit and Debt

I’m not certain what 20 trillion dollars looks like. I think it is $20,000,000,000,000 but it might be plus or minus a nought or three. 20 trillion is the estimated American debt for the end of the current fiscal period, which I understand is 31 December, 2018. Put simply, at the end of the year, this is what America’s federal government and its citizens will owe the rest of the world. Put another way, assuming there are three hundred million Americans (I know there are more but the math gets too difficult) every single American man, woman, child and baby owes in the region of $70,000 and this amount rises daily. I am no economist but how is this debt sustainable? What happens if the bond market decides America has become too big a risk or can it be too big to fail?

Congress and the Chief Executive keep “kicking the can down the road” when it comes to the budget. The current Continuing Resolution to keep the federal government open expires on 5^th March and the President is zealously threatening that there will be no more CRs. Without an agreement, including a deal on new immigration laws, the federal government will shut down.

I have to ask myself, what the hell are these people doing? Here we have the wealthiest country in the world borrowing vast sums from the rest of the world to sustain a standard of living. It’s like Rockefeller borrowing a few bucks from his workers to keep the lights and heating on in his mansion. Yes, totally crazy.

If Congress approves the Trump budget, the deficit, i.e. the difference between the federal tax take and government expenditure, is an estimated and eye-watering one trillion dollars. In times of strife, war or economic depression, governments need to borrow. Less than a century ago, Roosevelt borrowed the country’s way out of the Great Depression, creating numerous agencies and programmes along the way to put the nation’s men back to work. But FDR was not a deficit spender and he sought to balance the budget as soon as he could. Forty years ago, Republican President Ronald Reagan ran huge deficits to boost military spending and restore America’s No 1 world position. Reagan was a colossal deficit spender but Reagan believed he had huge US assets to borrow against and seemed unconcerned by both deficit and debt.

The current Trump budget is both a message and a wish list but it contradicts and breaks many campaign promises. For example, during the campaign Trump promised he would not cut Medicare or Medicaid. The current proposals include cuts of $554 billion to Medicare and $250 billion to Medicaid. The middle classes and poor will feel the cuts the most.

Another Trump promise was he would balance the budget “very quickly.”  Last year, the self-proclaimed “king of debt” laid out a plan to balance the budget in 10 years. This year he has not bothered. Trump accepts annual deficits in excess of $1 trillion as the new norm. It is worth recording that Trump also promised to get rid of the national debt by the end of his second term. That one has clearly gone by the board.

In 1999, then Texas Gov. George W. Bush denounced a House Republican plan to save $8 billion by deferring tax credit payments for low-income people. “I don't think they ought to balance their budget on the backs of the poor.” While Trump has never claimed the mantle of “compassionate conservatism,” his budget validates several of the negative stereotypes that Bush tried to shed. For example, Trump wants to cut $214 billion from the food stamp program in the next decade, a reduction of nearly 30 percent.

However, the President is not calling for a reduction in the size of government. He seeks to spend $4.4 trillion next year, up 10 percent from last year. He’s calling for spending less on the home front to cover a massive military build-up. Trump wants $716 billion in defence spending in 2019, a 13 percent increase. “The Trump plan provides more money for just about everything a general or admiral might desire,” Greg Jaffe notes. “The United States already spends more on its military than the next eight nations combined.” More to the point, military spending is at the expense of the poor and middle classes.

Trump proposes to slash the State Department’s budget by 23 percent. He will justify this act as part of “clearing the swamp.” Should there be ensuing foreign disasters, Trump will no doubt excuse himself and blame another factor, in the same way that he blames the Parkland school shootings on mental illness, not guns. Yet this is the same man who signed an Executive Order easing restrictions on the mentally challenged buying weapons.

Alongside this massive budgeted expenditure are the tax cuts. This is solid Reaganomics. Cut taxes and the tax take will go up, thus paying for the massive expenditures. For example, the administration hopes that by reducing corporation tax from 35% to 21%, the amount of tax actually paid will be increased because corporations will not try to avoid or reduce the tax they pay. For me, this is pure Disney, fantasy without the music and the warm, mushy feeling.

Where are the legislators in this mess? It seems the Democrats have given up on the deficit and the debt arguments and opposition this year in exchange for a debate on immigration laws that save DACA and the Dreamers, those children born outside US but brought to US by their parents who were illegal immigrants. Why did the Democrats not continue to fight on all fronts? Do they approve deficits and debt? As for the Republicans, these are the same people who denied Obama funding on several welfare programmes and, in 2013, shut down the federal government on terms of “not a cent more.” The sheer hypocrisy of the politicians at the heart of American government is breath-taking.

In my younger days, I loved my many visits to the United States, whether for business, research or just visiting. I found out that the special relationship between Brits and Americans did indeed exist, although mainly at the grass roots level. Now, the lack of progress in America on any meaningful gun control, the sheer flippancy when it comes to the economy and the apparent dominance of the ‘me’ society, not the ‘we’ society, makes me fear for the future there. I sincerely hope I am wrong.