Remember all that Republican hoopla last year about their tax reform? It would pay for itself by spurring economic growth to three or four percent for years to come. Manufacturing would come back to the United States, millions of good-paying jobs would be created and wages would increase significantly. Well, the recent 10-year projection of federal budgets and the U.S. economy by the Congressional Budget Office just flushed all that manure down the toilet.
The nonpartisan CBO’s report made big headlines in the media last Monday. It contains disturbing data that is sure to affect the finances of all Americans. Unfortunately, the numerous articles about its dire predictions were quickly obscured by the FBI raid on the offices of President Trump’s attorney Michael Cohen.
This report sounds the alarm on the burgeoning federal debt that is projected to be more than $33 trillion in 2028 — a 57 percent increase from the current debt. The GOP tax cut last December and the omnibus spending bill Congress passed in February accounted for most of the increase since the last ominous CBO projection in June 2017.
What does this mean for the average American? CBO director Keith Hall said “Such high and rising debt would have serious negative consequences for the budget and the nation.” He added, “In particular, the likelihood of a fiscal crisis in the United States would increase.” Hall warned, “The longer you wait, the more draconian the measures have to be to fix the problem.” Ouch!
According to the CBO, interest on the debt will exceed government spending on defense by 2023 and will approach $1 trillion a year by 2028 — more than triple the 2017 interest costs. Numerous economists believe the rising deficits will drive up interest rates, slow the economy and add even more red ink in federal budgets. Needless to say, the stock markets will react quite negatively too.
The CBO report dashes the unrealistic hope that the tax reform would pay for itself by spurring economic growth. Instead it will slash federal revenues over 10 years by almost $1.3 trillion and add almost $1.9 trillion to the national debt, including interest. The report does project economic growth of 3.3 percent in this election year as Republicans hoped, but that growth will recede during the remainder of the decade and is anticipated to average 1.9 percent.
The Trump administration hyped the tax reform as a job creator and wage booster. In fact, they claimed it would add a minimum of $4,000 to the incomes of the average family. The CBO report projects a marginal boost to jobs and wages over the next decade, with a per year average of 1.1 million extra jobs and 0.9 percent added increase for salaries and wages.
But here’s the thing. Trump and the GOP-controlled Congress have filled the economic landscape with uncertainty. Republicans claimed corporations would invest their huge tax cut in new plants and equipment. But businesses are concerned that Trump’s tariffs will cause a trade war and they worry that Trump will upset or back out of the North American Free Trade Agreement. Meanwhile, free trade-loving congressional Republicans simply shrug.
Will companies be eager to invest when the future is so cloudy? I don’t think so. In fact, I believe the uncertainty will significantly lower the 3.3 percent growth the CBO projects for 2018.
Critics of the GOP tax plan claimed it was sloppily written and full of errors, that it would do immense harm to the nation’s finances, that corporations would mainly use their windfall tax cut to buy back stock and that Republicans would use the huge deficits it creates to attack so-called entitlement programs. All of these concerns are becoming realities.
The tax reform’s low corporate rates were supposed to provide incentive for companies keep their manufacturing facilities in the U.S. but the CBO found that certain provisions of the new tax code could encourage multinationals to move plants and machinery off shore. It’s too early to know if this will happen but it’s another red flag.
Two things, however, are certain at this point. The recent tax reform and current spending plans have greatly exacerbated the nation’s fiscal problems. The GOP-led Congress has no realistic plan to correct the current trajectory of the deficits. In fact, Trump and some congressional allies want to extend the individual income tax provisions that will expire in 2025. That could add another $1 trillion or so to the deficits.
The GOP model of tax cuts for corporations and the wealthy have failed in Republican-led states all over the country, with Kansas, Oklahoma and Louisiana as prime examples. Republican legislators in these states cut funding for education to help solve revenue shortfalls and meet balanced budget requirements. This deprives their children of the skills necessary to compete in today’s economy. Dumb!
At the federal level Republicans will attempt to turn Medicare into a premium support program that will put beneficiaries at the mercy of insurance companies, cut funding for Medicaid with block grants to the states and decrease Social Security benefits. It’s part of their “give to those who don’t need it and take from those who do” philosophy. Dumber!
So far, 46 Republicans have recently retired or decided not seek reelection to Congress, including Speaker Paul Ryan (R-Wis.). Let’s try to make sure a lot more of them will be retired in November.