Why I Am Optimistic about President Trump

 

I voted for Hillary Clinton last November. Not because I liked her program.  I was voting against Donald Trump.  He is crude, sleazy and a terrible narcissist.  I preferred John Kasich, Governor of Ohio, in the Republican Primary.  But he didn’t make it.  I voted for Mitt Romney in 2012 but he didn’t make it either.
The question now is whether or not the Trump Administration will effectively address our country’s two biggest problems, both of which are very serious and need urgent attention:

  • Slow economic growth, averaging just 2% per year since the end of the Great Recession in June 2009. Faster growth means a tighter labor market which in turn means more workers and higher wages. This in turn means less inequality. Furthermore, it is the United States’ dominant economic strength which assures world peace and stability. The Chinese economy, now half the size of ours, will catch us eventually. But stronger U.S. growth will delay this and enable us to cope with it better when it happens.
  • Massive Debt. The public debt of $14 trillion (on which we pay interest) is now 77% of GDP, (https://itdoesnotaddup.com/2017/01/31/trump-needs-a-wall-of-fiscal-discipline/) the highest since the end of WWII and steadily getting worse. With current low interest rates the debt is now essentially “free” money. But what will happen when interest rates return to normal historical levels? At this point interest payments on the debt will rise precipitously and become a huge drain on the budget. We can’t prevent this from happening but we can lessen the impact by acting now.

Will the Trump Administration take these two problems seriously?

  • For sure on economic growth. His re-election chances in four years depend largely on the fortunes of his base of blue-collar workers. His appointments at Treasury (Mnuchin), HHS (Price), and EPA (Pruitt) all support the tax reform and deregulation needed to get this done. I am confident that Trump will avoid a disastrous trade war.capture99
  • The debt. This is trickier because Trump has said he won’t touch Social Security or Medicare. My optimism is based on the fact that the Debt Ceiling will be re-imposed on March 16 at its level on that date. This will give Congress just a few months to raise the ceiling to a higher level. It is likely that the many fiscal conservatives in the House will insist, in return, for some sort of spending restraint such as a ten-year plan to balance the budget.

Conclusion. We’re not out of the woods yet. But there is a clear path showing the way forward.

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The House Budget vs the President’s Budget: Another Reason for a Balanced Budget Amendment

 

In January I had several posts advocating in favor of a Balanced Budget Amendment to the U.S. Constitution.  Briefly, the argument runs as follows:

  • Our public debt (on which we pay interest) is now at 74% of GDP, the highest it has been since the end of WWII.
  • Democrats want to raise taxes and increase spending; Republicans want to cut taxes and decrease spending. The only way to satisfy both parties simultaneously is to run huge annual deficits which is exactly what has happened ever since the end of the Great Recession in 2009.

Current planning for the next budget year beginning October 1, 2016 has now begun. Both the House Budget Committee and the President have budget proposals for next year. As reported by the Peterson Foundation, these two budgets differ substantially:
Capture0

  • The President’s budget would hold the public debt at about 75% of GDP over the next ten years by both raising taxes and increasing spending on a variety of programs.
  • The House Budget Committee plan keeps revenues steady at 18.2% of GDP over the next ten years and achieves a balanced budget after ten years. By 2026 the debt held by the public would fall to 57% of GDP from its current 74% level.

Here are two significantly different ten year budget plans. What is likely to happen is a complete standoff without any bipartisan agreement.  This means that no appropriations bills for individual government agencies will be enacted by October 1.  Finally, as usual, an omnibus spending bill will be put together by Congressional leaders and forced through at the last minute to avoid a government shutdown.
A BBA would make both sides compromise and come up with an overall plan.  It would likely contain both spending restraint and new sources of revenue.  Then the various Congressional committees would hammer out the spending details for individual agencies and department.  It would be a far more sensible and transparent process than the way things are done now.
Congress and the President have to be forced to act in such a reasonable manner.  A Balance Budget Amendment is perhaps the only way to make this happen.

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Solving America’s Most Basic Problems

 

My last two posts, here and here, argue that America’s two most critical problems are:

  • Speeding up economic growth in order to create more jobs and better paying jobs, especially for middle- and lower-income workers whose wages have been stagnant for the past 15 years.
  • Getting our large and rapidly growing national debt under control by shrinking annual deficit spending. This will put our debt on a downward path as a percentage of GDP.

Many Facebook comments on these posts inquire about how these goals will be accomplished. If tax reform is the best way to increase economic growth, how can this be done in a way that is fair to the non-wealthy. If spending cuts are necessary to balance the budget, what cuts should be made?  Here is a summary of my views on these questions:

  • Growing the economy with tax reform. The best way to spur investment and business expansion is with the lowest possible tax rates on owners and investors. Broad-based tax reform, with lower tax rates for all, paid for (i.e. in a revenue neutral way) by closing loopholes and shrinking deductions, will accomplish this. The 64% of taxpayers who do not itemize deductions will increase their income with tax rate cuts. Lower tax rates for the affluent will be offset by shrinking deductions and closing loopholes.
  • The corporate tax rate should also be cut to internationally competitive levels, again paid for by drastically shrinking, if not totally eliminating, all deductions. This way all corporations (including GE!) would pay the same tax rate. And American companies would have much less incentive to move overseas.
    Capture0
  • Reducing our national debt. We have got to drastically shrink our annual deficits (now running about $500 billion per year) in order to put our national debt on a downward course, as a percentage of GDP. The House Budget Committee has recently passed a plan to balance the budget within ten years. Not everyone will agree with the details, but at least it’s a starting point. An alternative approach is to adopt a Balanced Budget Amendment to the U.S. Constitution. This would require Congress to make tradeoffs annually between either restraining spending or raising taxes.  A BBA will force them to do what they should be doing anyway!

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Why I Lean Republican

 

In the midst of a tumultuous presidential campaign season, it iscommon for partisans of the left and the right to question the integrity, motives and values of those on the other side of the political divide. For example, the rise of Donald Trump in the Republican primaries has led some observers to declare that the Republican Party has lost its way and no longer has any sort of basic, coherent and broadly acceptable political philosophy.
On the contrary, I think that Republicans do by and large share the following two general attitudes towards government which are favorite topics of discussion on this blog:

  • Economic growth in recent years has been much too slow and it should be a major goal of government to substantially speed it up.
  • Our national debt is much too high and Congress and the President should be making serious efforts to balance the budget on an annual basis.

The House Budget Committee has just made a big contribution towards the second goal with, “A Balanced Budget for a Stronger America. Fiscal Year 2017 Budget Resolution.”
Capture0Here are its basic components:

  • The federal budget will be brought into balance over a ten year period.
  • Devolving power back to the states.
  • Prioritizing the responsibilities of the federal government and concentrating on the most important.
  • Strengthening government functions that are critical to the health, retirement and economic security of millions of Americans.

Such a budget plan as this could make an excellent first step towards an eventual bipartisan agreement that would address some of our country’s biggest problems. Instead it is likely to be ridiculed or dismissed by the Democratic Party as mere political posturing by the Republican majority in Congress. What could be a beginning to real progress on urgent issues will probably just be washed down the drain.

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The Budget Deal: A Win for the Big Spenders

 

A tentative budget deal has just been reached by Congress and the President to 1) suspend the debt limit until March 2017, and 2) loosen the budget sequester caps by $112 billion over the next two years.  $80 billion of the increased spending will be balanced by spending cuts elsewhere in the budget with details to be worked out later by various appropriations committees.  Specifically:

  • The current debt ceiling of $18.1 trillion will be lifted until March 2017, after a new president takes office. This will allow an expected increase in the debt of about $900 billion to take place over the next 1½ years.
  • Both military and discretionary non-military spending will increase by $40 billion each over the next 2 years with the military receiving an additional $32 billion for Overseas Contingency Operations.

The problem is that such a deal essentially just maintains the budget status-quo. It does nothing to begin shrinking annual deficits in order to put our accumulated national debt on a downward path as a percentage of GDP.  Our current debt of 74% of GDP is very high by historical standards and simply must be brought down significantly in the near term.
Capture1As I explained in my last post, Congressional Republicans, with majorities in both the House and the Senate, should be able to apply much more leverage than was used in the deal just reached, as follows:

  • Yes, extend the debt ceiling for two years. We need to pay our debts. But insist on spending discipline from now on.
  • Allow only brief temporary budget extensions at current levels until a plan is adopted to put deficits and debt on a downward path. The Republican ten year plan for a balanced budget would be a good place to start.

It’s time for fiscal conservatives to stand up and be counted!

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Resolving the Current Budget Impasse in Congress

 

Congress is facing two critical fiscal deadlines in the very near future. Our current debt ceiling of $18.1 trillion will be exceeded by November 4.  A temporary 2016 budget was passed that will fund the federal government at its current level through December 11.  There is much pressure on Congress to lift the sequester limits for discretionary spending which have been in effect since early in 2013.  The Republican majorities in Congress should use their leverage to promote fiscal responsibility in the following way:

  • Extend the debt ceiling by $1 trillion or enough to last about two years at our current rate of deficit spending. Control over the debt ceiling gives Congress an important tool with which to remind the voters of the urgency of shrinking the national debt. Make it clear that in return for supporting payment of existing obligations, Republicans will insist on far more spending restraint in the future.
  • For example, Congress should agree to only additional short term extensions of this year’s budget at current spending levels, including sequester limits, until a long-term budget plan is locked into place along the lines of:Capture
  • The ten year budget plan adopted by Congress last Spring produces a balanced budget by 2025. Perhaps surprising to many people, it still allows spending to increase by 3.3% annually which is approximately double the current rate of inflation.

Such a plan of indefinite short term budget extensions at current levels will get the focused attention of all big spenders including conservatives who want more military spending as well as the President and his Democratic allies in Congress.  Everything should be on the table: entitlement reform, tax reform, immigration reform, etc.  There need be no deadline for agreement; the current budget could simply be renewed at short term intervals until a mutually acceptable plan was achieved.  No plan, then no budget increases.  Take your pick.
Conclusion: a national debt of 74% of GDP is in fact a fiscal crisis and the Republicans have enough leverage to force a showdown in a sensible way.  They should use it!

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The Republican Budgets Focus on Entitlement Savings

 

Last week, both the House and the Senate passed ten year budget plans which would bring the federal budget into balance by 2025.  I have devoted several recent blog posts to discussing these budget proposals and how they address our very serious debt and deficit problems.
CaptureThere are several important points to make:

  • Under both of these Republican plans, overall spending will continue to increase by an average of 3.3% per year, from $3.8 trillion in 2016 to just over $5 trillion in 2015. The President’s budget would increase spending to $6.17 trillion by 2025 and would achieve no balance between spending and revenue.
  • Most of the savings in the Republican budgets, as indicated in the above chart, come from the mandatory (entitlement) programs of Social Security, Medicare and Medicaid. Medicare would be transformed into a subsidy program along the lines of the exchanges set up under the Affordable Care Act. Medicaid would be turned into a block grant program administered by the states. Social Security would be studied by a bipartisan commission to recommend operating efficiencies.
  • Other social welfare programs would be affected to a much smaller extent. For example, the Supplemental Nutrition Assistance Program (SNAP), or Food Stamps, has seen a growth of recipients of 69% between 2008 and 2013 while the poverty rate increased by just 16.5% during the same period. The Republican budgets would block grant Food Stamps to the states in order to achieve operating efficiencies.
  • It is true that both the House and Senate budgets would increase military spending by about 10%. But so would the President’s budget and we live in a very dangerous world. Military defense is one of the most very basic functions of our federal government.

Our country is in dire fiscal condition with large annual deficits projected indefinitely into the future, contributing to an exploding national debt.  It is heartening that our political system is responding to this threat to our future security and prosperity.  Let’s hope that House and Senate majorities continue to keep a sharp focus on the urgent task of fiscal restraint.