Trump has Co-President in Second Term
Trump’s economy battle, inflation, more tax cuts (extension of his 2017 tax cuts for the very top) and other promises lead the way in this story from MARKET WATCH with this their headline:
“Trump to break all-time federal debt record amid inflation battle”
“Don’t hold your
breath,” for deficit reduction, said a Bank of America economist
Trump will enter office with big plans (1) to make his 2017 tax cuts permanent, (1) to solve a generational migration crisis, (3) to beef up the U.S. military to face down a rising China, (4) to remake world trade through tariffs, and (5) have combative negotiations.
Such a platform would be difficult to implement in
the most favorable conditions, but the second Trump administration will have to
seek to achieve these goals against a backdrop of historically large budget
deficits that are only set to rise in the coming years, according to a report
from the Congressional Budget Office just published.
The CBO said that the 2024
will come in at $1.9 trillion, or 6.4% of GDP, both record levels outside of
wartime, pandemic, or a recession.
The deficit is only set to
grow from here, to $2.7 trillion in 2035.
The overall federal debt
is also set to balloon as mandatory spending on programs like Medicaid,
Medicare, and Social Security are set to rise faster than revenue (three
biggest mandatory spending programs).
The overall federal debt is also set to balloon as mandatory spending on programs like Medicaid, Medicare and Social Security are set to rise faster than revenue.
Federal debt held by the public as a share of the total economy will surpass the previous record of 106.1%, set in the waning days of World War II, by 2029, Trump’s last year in office.
It will continue to
rise to 118% of GDP by 2035, the CBO projects.
Michael A. Peterson,
CEO of the Peter G. Peterson Foundation, an advocate for a smaller budget
deficit says: “By any definition, we
are on an unsustainable fiscal path. The recent trend of rising interest rates
amid Federal Reserve interest rate cuts is an unusual dynamic that reflects market
concerns about future debt and inflation.”
Economists say that one of the drivers of the bout of
inflation followed the COVID pandemic which hamstrung President Biden’s efforts
to win a second term, and was driven by government deficits.
Those same deficits could derail the Federal Reserve’s plans
to lower interest rates, a policy vocally supported by Trump.
BofA economist
Claudio Irigoyen wrote that historic budget deficits are one reason why the Fed
will not be able to lower interest rates again anytime soon and Trump’s
proposed policies will only make lower interest rates even more difficult
adding: “There is significant
uncertainty about the impact of Trumponomics
2.0 both in the U.S. and the rest of
the world. Protectionist policies will fuel expectations for higher inflation
while excessive fiscal stimulus, including Trump’s plans to spend upwards of $5
trillion extending his 2017 tax cuts, will only add fuel to the inflation fire.”
Another major economic
consequence of the sea of red ink facing the incoming administration is that
elevated federal deficits can draw investment away from more efficient private
activity in order to fund government mandates.
As the Trump
administration will want to foster investment in energy production and the
burgeoning AI sector, rising deficits also risk blunting private spending, as
investors buy up Treasury debt rather than spend that money on new ventures.
The CBO estimates that for each dollar the federal deficit increases, domestic private investment falls by 33 cents, and the effects of depressed private spending will likely lead to slower economic and wage growth.
Republicans recognize this reality, hence their efforts to find trillions in savings through Musk and DOGE, and cuts to healthcare programs like Medicare and Medicaid.
But even if these politically painful cuts do
materialize — a big if given Republicans’ historically small three-vote majority
in the House — they are unlikely to do more than defray the cost of Trump’s
plans for massive tax cuts.
Even in a best-case
scenario, Irigoyen wrote: “Trump and
his allies in Congress will cut the deficit to 4% of GDP from north of 6%
today. While that would be significant progress, it’s unclear how much it would
do to lighten the economic burden of high deficits. A more plausible scenario is that the deficit doesn’t reduce at all in
the next two fiscal years, with tax cuts, interest expenses and rising
entitlement spending offsetting DOGE-recommended spending cuts and tariffs. Don’t
hold your breath for fiscal consolidation.”
My 2 Cents (taken from this super summary at ABC here and edited and formatted to fit this summary).
In 2016 Trump campaigned as a billionaire, savvy businessman, champion of the working class, economic prowess, and deal-cutting skills that politicians lacked.
He summed up his position neatly during that campaign: “I'll be the
greatest jobs president that God ever created.”
On the campaign trail, Trump claimed to be laser-focused on (1) bringing back manufacturing and mining jobs, (2) renegotiating trade deals that led to work disappearing overseas, and (3) curtailing immigration.
His Clintonian tack of “it's the economy, stupid,” despite the myriad scandals and investigations that dogged him, largely worked as GDP grew at a healthy clip, the stock market soared, and unemployment rates hit a half-century low, until the coronavirus pandemic gutted the job market.
Yet he left office after one-term tenure, and became the first president since Herbert Hoover, during the Great Depression, to depart office with fewer jobs in the country than when he entered.
His legacy has been defined by (1) his failure in leadership during the COVID-19 pandemic that exacerbated the financial downturn; (2) domestic policies that overwhelmingly benefited the wealthy (that 2017 tax cut); and (3) international trade policies that hurt our industry while simultaneously alienating allies.
We are about to find more in Trump 2.0. Be
prepared for the worse ever (at least in my view).
Finally, I read this posted on X (formerly Twitter) from Robert Reich: Trump wants to cut the corporate tax rate to 15%.
This would give...
The 5 largest banks a $4.1B tax cut.
The 5 largest drug makers a $3.1B tax cut.
The 5 largest U.S oil companies a $2.5B
tax cut.
The biggest political divide in America isn't “left versus right.”
It's the people versus the oligarchy.
Thanks for stopping by.