Donald Trump's fuzzy deficit-cutting math
Donald Trump has big -- huuuge -- plans for the economy. Do those plans have any merit?
Perhaps it's a mistake to take presidential candidates' economic proposals as serious policy rather than signals of tribal affiliation, opening bids in post-election negotiations or pandering for votes by telling various groups what they want to hear, even if the parts don't add up to a feasible whole.
Nevertheless, I'm taking Trump's proposals for taxes, the government debt, Medicare and Social Security as though they are genuine.
Trump says he'll cut taxes significantly for individuals and businesses, a plan that will reduce government revenue by an estimated $9.5 trillion over 10 years. He also says he can eliminate the $19 trillion government debt within eight years and, at the same time, protect Social Security and Medicare from cuts.
Despite claims by many Republicans that tax cuts create an economic boom that makes them largely self-financing -- some even claim that tax cuts can pay for themselves -- the reality is that large tax reductions increase the budget deficit significantly. Thus, the first thing to note is that under Trump's plan, the government debt would be much larger than it is today.
How would he eliminate that debt? He claims he'll slash the deficit to zero in eight years by reducing waste, fraud and abuse in government programs, cutting foreign aid, closing the Department of Education and the Environmental Protection Agency, selling off government assets and getting rid of the trade deficit by negotiating better trade deals and imposing tariffs.
However, even if drastic measures such as closing the Department of Education and the EPA were to actually happen, that would reduce federal spending by only a small amount. Similarly, foreign aid is less than 1 percent of federal outlays, and cutting fraud and waste to zero wouldn't make much of a dent in the federal budget (and reducing fraud would require additional government spending on oversight).
Selling off government assets, even if it's a good idea, wouldn't help much either because, as The Washington Post noted, "The assets of the United States are valued at about $3.2 trillion, not counting heritage assets such as national parks, forests, museums, monuments and land used by the military."
Trump's final suggestion -- cutting better trade deals to reduce the trade deficit -- is another hollow promise. Even if he could somehow renegotiate deals and impose tariffs that resulted in a zero trade deficit (which is doubtful), the resulting tariff revenue would be coming from a much smaller flow of goods as imports become more expensive. Therefore, the small changes in GDP and hence taxes that would occur would have very little impact on the budget deficit.
Government spending mainly goes toward two things: social insurance programs such as Social Security and Medicare, and military spending. To get a budget surplus and begin paying down the debt requires some combination of tax increases, cuts to social insurance and reductions in military spending. Trump has said he'll cut taxes and protect Social Security and Medicare, which leaves massive cuts in military spending as his only option. Of course, that's not going to happen.
The question is, if Trump were to be elected, what will give? Will he give up his tax cuts to protect Social Security and Medicare? Will he run large deficits to make good on his other promises? Or will social insurance program suffer large cuts after all, or will military spending get slashed?
If Trump becomes president, Congress is more than likely to remain in Republican control. Given the GOP's support for tax cuts and military spending, its desire to cut social insurance programs and its tendency in the past to let deficits rise in support of tax cuts, the answer seems clear enough to me.
When the art of the deal between Trump and Congress is complete, the tax cuts would survive, particularly for those with higher incomes, and the military would, if anything, receive more, not less. To pay for the tax cuts and military spending, social insurance programs would be scaled back, and the government debt would go up.