The Mortgage Corner
The Treasury is on track to issue $1.34 trillion in new debt this year, more than double the amount in 2017. The Trump tax cuts and higher government spending are leading to higher borrowing needs, and Federal Reserve’s response is to continue to raise borrowing costs, which threatens to slow down consumer spending at holiday time.
Trump and Republicans cut $1.5 trillion in taxes with the promise it would pay down the national debt. Instead, our national debt is ballooning during a booming economy—not a good sign when the economy eventually slows down and revenues decline.
That’s why former Fed Chairwoman Janet Yellen said Tuesday that she’s worried about the longer-term deficit outlook. She called for entitlement reform and tax hikes to bring down the federal deficit.
Tax hikes?? That won’t happen with this administration that has built in benefits for just the top 10 percent income earners, and corporations, of course. It is something Repubs don’t want to talk about, which is why President Trump throws out misinformation about amending the 14th Amendment with an Executive Order; the amendment that allows citizenship for births in the U.S. to undocumented residents.
Amend the Constitution with an Executive Order?? Can’t happen without three-quarters of the states ratifying it, as anyone knows that has attended a civics class during their school years. Even educated Trump supporters have to know that fact.
Most developed countries also allow this for good reason. It replenishes the shrinking workforce in developed countries that have declining birthrates. The shrinking workforce is a big problem because it is population + labor productivity growths that determine economic growth.
The budget deficit is widening in a big way. In the first 11 months of the fiscal year, the deficit was $895 billion, which is $222 billion more than the previous year. Outlays have climbed 7 percent while revenue rose just 1 percent, and the national debt has climbed to $21.2 trillion.
The Congressional Budget Office reports, “Corporate taxes have plummeted by 30 percent this fiscal year, both because of the lower rate as well as the expanded ability to immediately deduct the full value of equipment purchases. Individual income and payroll taxes have climbed 4 percent, as increasing wages — mostly, due to more people having jobs — offset a lower withholding rate.”
Spending on Social Security and Medicare have also climbed 4 percent as more baby boomers retire, outlays on net interest on the debt have jumped 19 percent in part due to a higher rate of inflation triggering more payments to inflation-protected securities holders, and defense spending has jumped 6 percent.
U.S. total national debt has already reached 100 percent of GDP. Scary isn’t it? That’s why President Trump is trying to scare us even more with an “invasion” of several thousand Central Americans fleeing their countries’ poor economies and gang violence. But our national debt is scarier because it harms the prosperity of future generations.
“By 2028, America’s government debt burden could explode from this year’s $15.5 trillion to a staggering $33 trillion—more than 20 percent bigger than it would have been had Trump’s agenda not passed,” said a recent Forbes article. “At that point, interest payments would absorb more than $1 in $5 of federal revenue, crippling the government’s capacity to bolster the economy, and constraining the private sector too.”
Halloween is the time we scare children. But unless we return to responsible budgeting, it means a scarier future for everyone.
Harlan Green © 2018
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen