It was more than 10 daily news cycles ago, so you can be forgiven if you don’t remember this, but way back on Aug. 1, Congress made some news. It passed a budget bill, signed the next day by the president that will direct federal spending for the next two years.
You may have heard that it keeps lawmakers from using routine debt ceiling votes to hold the world economy hostage, at least until 2021.
Or you may know the size of the whole package ($4.4 trillion) and the fact that it calls for an additional $320 billion in spending, which will drive the deficit beyond $900 billion.
But research by Maine Sen. Angus King put the budget in a perspective that’s worth considering before this news story gets swept down the memory hole.
It’s true, King found, that the budget deal pumps up the deficit, but not because spending is out of control. The total is just about 20 percent of gross domestic product, which is where it has been since the mid-1950s, after the huge World War II debt was paid off.
Discretionary spending, which includes the budgets for the departments of Defense, Justice, State, Veterans Affairs and Education, among others, is near historic lows as a share of GDP.
What’s running up the debt is not out-of-balance spending but revenue collections that don’t keep up with inflation. And for that we can thank the Republican tax reform package that was pushed through on a partisan basis in 2017. Predictions that cutting taxes on corporations, wealthy families and individuals would spur enough economic growth to increase tax collections – an argument made by Maine Sen. Susan Collins and others – turned out to be wrong. The economy grew, but tax revenues did not.
Digging further, King concludes that there would have been zero deficit in next year’s budget if not for the tax cuts passed under presidents George W. Bush (in 2001 and 2003) and Donald Trump. If tax rates had remained at the level they were in 2000, when the economy was growing at more than 4 percent per year and the federal budget was running a surplus, we would be reducing the national debt during this historically long economic expansion, instead of adding to it.
That’s an important point to recognize for two reasons: If you don’t spend down the debt during an expansion, there’s less slack in the budget to enable the federal government to borrow during bad times, such as during a recession or a war. And running the government with insufficient revenue puts pressure on mandatory spending programs like Social Security and Medicare, which make up about two-thirds of federal spending.
King figures that if you wanted to balance next year’s budget without raising taxes, you would have to virtually eliminate all discretionary spending – defense and nondefense – leaving a federal government that does little more than cut Social Security checks and reimburse Medicare providers.
Those mandatory programs are in danger, not because they are overly generous or because people don’t like them, but because there will soon be nowhere else to cut unless Congress does something that boosts revenue.
If nothing else, this budget should put to rest, once and for all, the notion that tax cuts pay for themselves by generating economic activity. They just don’t.
If politicians want to, they can say that the wealthiest Americans have worked hard enough and deserve a break. But no one should ever again be allowed to make the specious claim that giving money away to people at the top will make life better for the middle class.
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