This article has been updated.
On the campaign trail, Donald Trump liked to mention the number $20 trillion.
“The national debt,” he said during a campaign event in Wilmington, N.C., in August 2016. “So we’re up to almost $20 trillion — 20 trillion! The national debt under Obama has doubled. Think of it, doubled. Might be, I think by the time he gets out, it’s going to more than double, but again, we have to be very accurate because they’ll say, ‘Well, it hasn’t quite doubled.’ Believe me, by the time he gets out it will have more than doubled.”
Well, it didn’t quite double. In the first quarter of 2009, the debt was about $11.1 trillion; by the first quarter of this year it was at about $19.8 trillion. The percentage increase in the debt under Barack Obama was about the same as the increase under George W. Bush — and paled next to Ronald Reagan.
What’s more, the reason it rose at the rate that it did was the recession. The spike in debt occurred in the middle of 2008, under Bush.
But, regardless. Trump repeatedly insisted that the spiking national debt was a problem. It was “a weight around the future of every young person in this country” (as he said in October 2016 in Ohio) that he would pay down by, among other things, giving energy companies more leeway. (This, he said during his second debate with Hillary Clinton, would allow those companies to “pay off our national debt.”)
Trump’s broader point was that economic growth would help pay down the debt. See that line for the Bill Clinton presidency on the first graph above? It was mostly flat later in his administration because the economy was doing well and the government was running an annual budget surplus, allowing it to pay down some of the debt. That, Trump argues, is his plan for reducing the debt.
Unfortunately, very few people outside the administration believe that Trump’s main strategy to make that happen — the tax bill being rushed through Congress — will be effective.
Estimates of the effect of the tax cuts show a spike of more than a trillion dollars in annual deficits over the next 10 years. The nonpartisan Congressional Budget Office estimates the figure at $1.414 trillion — or about 7 percent of the national debt in the third quarter of 2017. (It didn’t pass $20 trillion until after Trump’s inauguration.) The administration, though, has repeatedly echoed Trump’s argument: Growth in the economy from the cuts would wipe that $1.4 trillion away.
The available evidence contradicts that claim.
The contradiction at the heart of Trump’s rhetoric on the subject is that he constantly champions the strong economy (rising market indexes, etc.) while arguing that the tax bill is needed for the economy to grow even more. As our Andrew Van Dam pointed out on Wednesday, that’s unlikely. The Congressional Budget Office creates an estimate of how much economic growth is possible given the number of workers and production capacity. For the first time since the recession, the economy is operating to that potential — before the tax bill passes.
Imagine a car that can go up to 100 miles an hour. For several years it was slowly gaining speed and now, finally, is running at that speed. But Trump’s saying, in effect, that he’s going to take it to 150. Maybe he can redline it for a bit, but history suggests that’s probably not sustainable.
Ask economists what they think and they will say it’s unlikely the tax bill will actually reduce the debt. The University of Chicago’s Initiative on Global Markets asked 38 economists if they thought the tax proposal would lower the debt. Thirty-seven of those 38 said the tax bill would make the debt increase faster than it would otherwise.
The 38th economist at first said he was unsure — but he then acknowledged that he’d misread the question.
The Treasury Department was supposed to release an analysis showing that economic growth would erase the drop in revenue from the tax cuts. That analysis hasn’t been released. One government economist explained to the New York Times that “Treasury had not released a ‘dynamic’ analysis showing that the tax plan would be paid for with economic growth because one did not exist.”
A central part of the theory that growth will offset the revenue cuts is that slicing corporate taxes will mean more hiring and higher wages. Corporations don’t ascribe to that theory. Bloomberg News reported Wednesday that many major corporations instead plan to use the new influx of cash to buy stock back from shareholders, a boon to those who own the companies’ stock but not necessarily to employees.
Nor is it the case that businesses are cash-poor.
“Companies are sitting on large amounts of cash,” Merrill Lynch’s John Shin told Bloomberg. “They’re not really financially constrained. They’re still working for their shareholders, primarily.” His company’s research showed that only about a third of companies planned on using the tax cuts to reinvest in their businesses.
Back to Van Dam’s analysis of economic growth. His article included a chart contrasting what the Trump administration says will happen after the tax bill is passed with what economists think might happen.
Update: Shortly after this article was published, the Joint Committee on Taxation released new analysis that incorporated expected economic growth into estimates of the long-term effect on the budget. That analysis suggests that over the next decade, the deficit will be increased by $1 trillion.
Trump has already tried to claim that the economic growth he inherited is addressing the national debt. In an interview with Fox News’ Sean Hannity last month, Trump made an unexpected claim.
The Obama administration “borrowed more than $10 trillion, right?” he said. “And yet, we picked up 5.2 trillion just in the stock market. Possibly picked up the whole thing in terms of the first nine months, in terms of value. So you could say, in one sense, we’re really increasing values. And maybe in a sense we’re reducing debt.”
There is no sense in which adding value on the stock market directly reduces the debt. There is, however, a sense in which broadly slicing tax rates directly increases it.
Why, then, would a president who emerged from the private sector to campaign against the spike in the debt embrace a tax plan that outside analysis suggests would instead raise the debt more — and that would reward corporate stockholders, eliminate the estate tax for millionaires, slice business tax rates and disproportionately benefit the wealthiest Americans?
That question, we will leave to you to answer.