The other reality of the tax bill: Another trillion in debt

Allow me to confess that I’ve been right out there with the best of them (or is it the worst?) when it comes to high-fiving and back-slapping over the positive results of the tax cuts enacted before Christmas. Businesses are hiring, handing out bonuses and onshoring capital. Workers are seeing more money in their paychecks and will see significant benefits when they file their taxes next year. Yes, there is plenty to celebrate, but there’s also a second, far less pleasant reality to contemplate.

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As the WaPo reports this weekend, the federal government is now on track to borrow a massive amount of money this year and add many more bricks to the national debt pile hanging over our heads. In fact, federal borrowing is expected to nearly double our 2017 totals.

It was another crazy news week, so it’s understandable if you missed a small but important announcement from the Treasury Department: The federal government is on track to borrow nearly $1 trillion this fiscal year — Trump’s first full year in charge of the budget.

That’s almost double what the government borrowed in fiscal year 2017.

Here are the exact figures: The U.S. Treasury expects to borrow $955 billion this fiscal year, according to a documents released Wednesday. It’s the highest amount of borrowing in six years, and a big jump from the $519 billion the federal government borrowed last year.

So the CBO estimate is looking at $955B in new debt. That’s still a far cry from the $1.78 trillion we racked up in 2009 (the year of the largely failed Obama stimulus package) and still below the rolling, trillion plus we tacked on each year until 2012. But don’t take much comfort in that. This is still really bad news. And the estimate pulls no punches as to the reason. Revenues will be down significantly because of the tax cuts and increased economic activity resulting from them isn’t projected to come anywhere near making up for it.

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I seriously don’t want to be that guy, but I’m going to remind you that I was already raising the alarm about this back in early November when the tax cuts were being negotiated. At that time I attempted to warn our congressional majority that we needed to make sure that we didn’t turn the federal government into Kansas. After the massive tax cuts enacted by Sam Brownback went into effect, Kansas went broke and wound up having to cancel some of them. I quoted Ben Haller in a piece he wrote at Reason back in June of last year. Let’s look at that short summary of what went so badly wrong in Kansas again. (Emphasis added)

What went wrong? First, the legislature failed to eliminate politically popular exemptions and deductions, making the initial revenue drop more severe than the governor planned. The legislature and the governor could have reduced government spending to offset the decrease in revenue, but they also failed on that front. Government spending per capita remained relatively stable in the years following the recession to the present, despite the constant fiscal crises. In fact, state expenditure reports from the National Association of State Budget Officers show that total state expenditures in Kansas increased every year except 2013, where expenditures decreased a modest 3 percent from 2012.

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Looking at the bold sections in that paragraph, is any of it sounding familiar, now that all the details of the federal tax bill have been examined? I realize I said this last time, but it bears repeating. This is the hard part of fiscal conservatism. You have to convince the public that sometimes they need to take their medicine without that massive spoonful of sugar to wash it down. If you don’t cut a lot of the popular deductions and reduce spending across the board accordingly, we blow another massive hole in the budget. And we can’t just pretend that the expected revenue growth from trickle-down theory is going to cover the entire bill and then just act surprised when it doesn’t. All we’ll wind up doing is compounding our debt and deficit problems rather than correcting them.

Right now the economy is zipping along at a brisk clip, but it’s starting to look overheated. Analysts are already worrying that we may be running into a significant inflation problem by the end of this year. Washington is jacking up the interest rates on government bonds already, which is great news for investors in the short term but will sour quickly if we seriously start looking at the possibility of rapidly spiking inflation and at least a partial recession in 2019.

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This debt train doesn’t just keep rolling onward forever without going off the rails at some point. The GOP used to be the party of fiscal restraint, acting as a check on the profligate spending habits of the Democrats. But in 2018, nobody is minding the store in terms of debt awareness. We’re experiencing some high times right now, but without some fiscal restraint we’ll be paying the price for it and that bill may be coming due much sooner than some of you think.

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David Strom 6:40 PM | April 18, 2024
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