An Aug. 21 New York Times article, “Budget Deficit on Path to Surpass $1 Trillion Under Trump,” blames the need to “borrow increasing sums of money” on “a steep falloff in federal revenue after Mr. Trump’s 2017 tax cuts.”
Actually, the tax cut effect is relatively small, as I’ll show. Disliking tax cuts is fine, but implying they’re the main problem is irresponsible.
The Times article references Congressional Budget Office forecasts, so I’ll use CBO reports also.
Major legislation like tax cuts has multiple economic and budgetary effects. These effects are cumulative and best observed in the ratio of government debt to gross domestic product (GDP).
I’ll assess the effects of the 2018 tax cuts and the 2019 Bipartisan Budget Act by how they change the debt to GDP ratio in 2027, which is the last year common to the different 10-year CBO forecasts I use.
An increasing ratio means an increased debt burden. But first we need to know the pre-Trump forecast. That’s our baseline, and it comes from the January 2017 CBO forecast.
It shows the debt to GDP ratio jumping from 77.4 at the end of 2018 to 88.9 at the end of 2027, or 11.5 points. This tells us something big and scary is happening during the period, and it’s a pre-Trump effect.
In fact, it’s the baby boomer bulge with its multitrillion-dollar empty trust funds moving through the system on autopilot and expanded health care benefits with costs increasing faster than GDP.
The graphic below, from the 2016 CBO Long-Term Budget Outlook (page 2), shows this vividly. It shows broad expenditure and revenue categories, rather than debt, as a percentage of GDP.
Moving on to the January 2019 report, which includes the tax cut effect, the 2027 CBO ratio is now 90.0, or 1.1 points higher. So the tax cuts contribute less than 10 percent of what entitlements do (1.1/11.5) to America’s looming debt crisis, through 2027.
Next, after the 2019 Bipartisan Budget Act, the August 2019 report has the ratio increasing 2.4 points more to 92.4, more than twice the tax cut effect.
Look again at the graphic. The CBO’s best, pre-Trump estimate has three expense categories – Social Security, health care and debt interest – snowballing to eventually consume all revenues.
Politicians, relying on an uninformed/misinformed public, endlessly promise new programs while ignoring underfunded existing ones. The Times article irresponsibly politicized this important issue.
Salida resident Bob Engel is a retired actuary with extensive experience constructing and evaluating long-term financial projections.