Federal Budget Deficits Rising Again
Posted: August 19, 2016
Donald Trump has a huge tax-cut plan. Hillary Clinton is doubling down on proposed spending increases. Nowhere is it more evident in these two proposals that define each presidential candidate. But here's what neither presidential candidate wants you to know: Federal budget deficits, after declining from 2011 to 2015, are rising again. The national debt, which has doubled in the last eight years, is set to jump an additional $10 trillion in the next decade.
That is largely because of the cost of rising benefit programs, including Social Security and Medicare, as baby boomers arrive on the scene. During last month's political conventions in Philadelphia and Cleveland, deficits and debts were barely mentioned.
Last week, in Detroit, Trump outlined his latest version of his economic plan. Gone is his previous proposal to cut taxes by an astounding $9.5 trillion over the next 10 years, replaced by a less-specific plan to trim income taxes, slash corporate taxes and wipe out estate taxes. The self-proclaimed "king of debt" then went on CNBC last Thursday and said now is the time for the government to borrow even more because of low interest rates.
While budget deficits have come up in the presidential campaign, neither candidate has a plan to significantly reduce the debt. Over the long run, governments must raise enough revenue to pay for what they spend. Such thinking has led governments to avoid necessary countercyclical spending: Fiscal policy decisions are the main reason the euro area unemployment is still at 10 percent. Failing to allow deficits to rise temporarily during recessions causes needless suffering, and, because it fails to support revenue-generating growth, is often counterproductive.
Medicare is expected to run out of money by 2028. Both candidates offer the idea of targeting prescription drug costs, but not doctors, hospitals or even the wealthiest senior citizens. Something is going to have to happen soon, or our generation will be passing down to children and grandchildren the idea that things are going to cost more in the future.
RANDOM THOUGHT: A U.S. Pacific Rim trade deal is not dead, despite opposition from both presidential candidates and a partisan divide that makes compromise unlikely. But the proposal is in a boatload of trouble and may be headed for the scrap yard. The best case for The Transpacific Partnership? (TPP). Hillary Clinton wins the White House in 2017, especially if Democrats win control of the Senate. She would not be the first candidate to bash a trade pact in the campaign to appease the left side of the aisle.