To put this in context: This was the largest annual deficit in both raw dollar terms and as a share of the economy since 2012, when we were still recovering from the aftermath of the financial crisis and ensuing Great Recession. It was also a huge jump from where it was when President Trump first took office; the deficit is up by 26 percent since fiscal 2018 and a whopping 48 percent since 2017.
This is, needless to say, not what either Trump or others in his party told us to expect under Republican leadership. For years, the GOP cast itself as the party of fiscal responsibility, fighting tooth and nail against virtually any Obama-era expense even when the struggling economy desperately needed more fiscal stimulus.
When he ran for president in 2016, Trump promised to not only shrink deficits but to actually eliminate the entire federal debt — that is, to pay down all the accumulated deficits we’ve had over the years, which now add up to about $23 trillion.
The King of Debt’s promise to wipe out government debt was always nonsense. But reducing deficits? That seemed at least theoretically possible.
We’re more than a decade into an economic expansion, after all. For most of the postwar period, when unemployment was low, budget deficits fell or even flipped into surpluses.
That’s because a strong economy usually means much stronger tax revenue: People and companies earn more money and so remit more taxes. A strong economy also typically means less need for safety-net services such as food stamps or unemployment benefits, and therefore less overall government spending.
In the past few years, though, the health of the economy and the health of the budget have decoupled. In fact, fiscal 2019 was the fourth consecutive year in which the deficit increased as a percentage of the economy, despite falling unemployment.
So what went wrong?
To be fair, the country is aging. That means more Americans enrolling in Social Security and Medicare, which of course swells spending.
But even aside from this demographic change, our political leaders, corralled by Trump, have made things appreciably worse through their policy choices.
A political leader who’s serious about curbing budget deficits would propose actual fixes — including unpopular or painful ones, such as spending cuts or tax hikes. Instead, Trump decided to go on a tax-cut-and-spending-hike spree. He wished away the predictable deficit consequences with promises of turbocharged growth. While independent forecasters projected long-term economic growth around 2 percent, Trump instead pledged rates around 5 percent.
As I’ve explained before, a good rule of thumb is that the more growth a politician promises, the worse his economic plan likely is; it suggests he needed to make extra-rosy assumptions to get his math to work out. And that has clearly been the case with Trump.
Even Trump’s own economic advisers, such as Stephen Moore, now admit 5 percent economic growth was never remotely feasible. Trumpkins eventually scaled back their growth promises to a “mere” 4 percent, but those haven’t materialized, either.
We had a brief sugar high in growth last year, and now we’re reverting to annual rates in the mid-2-percent range. Which, to be clear, is still respectable. Because Republicans slashed tax rates, though, Treasury coffers haven’t benefited much from the continued expansion.
Corporate tax receipts, for instance, are projected to be up from last year (likely because the tax cuts front-loaded some changes, such as full expensing). But corporate tax revenue is still down a net 23 percent from fiscal 2017, the final year before the GOP tax overhaul.
Even rising tariff revenue — which, despite Trump’s claims to the contrary, are taxes paid by Americans — won’t make up the difference. In other words: No, tax cuts aren’t paying for themselves. The CBO estimated that the GOP tax cut would actually leave deficits over the next decade nearly $2 trillion larger than they would have otherwise been had the tax system stayed the same.
Meanwhile, federal spending has grown. A lot. And not just on the growing legions of elderly Americans; defense and other areas of discretionary spending have also shot up under Trump’s presidency. So have interest payments on the debt, even as interest rates have fallen.
There’s nary a peep about any of these trends from politicians of either party. And don’t expect one anytime soon — at least not until there’s a Democrat back in the White House, when we can expect all those Republican fiscal hawks to abruptly fly back home.