Tag Archives: government spending

Sorry, Republicans: If You’re Not Cutting Spending, You’re Not Cutting Taxes.

Hundreds (RGBStock)

President Donald Trump and Republican congressional leaders rolled out their new tax plan on November 2. Since all bills must have titles, they’re calling this one “The Tax Cuts and Jobs Act.”

Republican “tax reform” theatrics have worn thin over  many months of waiting, but I still prefer a more theatrical title. “A tale Told by an idiot, full of sound and fury, Signifying nothing” rings true. Four centuries later, Shakespeare’s MacBeth is a better description of the matter than any coming out of Washington, DC.

Yes, there’s plenty of quibbling across the aisle over everything from top rates to the home mortgage interest deduction, but neither party’s politicians seem willing to tackle the most basic, indisputable, and relevant fact: Since Congress isn’t cutting spending, Congress won’t be cutting taxes either.

In 2017, the US government will spend more than $4 trillion. That’s 21.5% of Gross Domestic Product, more than one out of every five dollars in wealth created by the US economy.

In order for that wealth to be spent by the political class, it must first be taken from the productive class. To spend a dollar, one must have a dollar. There are three ways to get the money, and all of them are taxation whether they’re called that or not.

The first and most obvious way, and the way dealt with in “The Tax Cuts and Jobs Act,” is through overt taxation. Personal income taxes. Payroll taxes linked to Social Security and Medicare. Capital gains taxes. Corporate taxes.  Tariffs. Etc., etc., ad nauseam.

The second way is borrowing. Government borrowing is more accurately described as deferred taxation. Borrowers have to be paid back. When government borrows a dollar, it is promising its creditors that it will, sooner or later, tax that dollar out of you (or your descendants) to pay back the principal, and that until then it will tax you a little bit each year to keep up interest payments.

The third way is inflation (which is tied to borrowing in ways too complicated and boring for a short column to cover). For all the murky descriptions of what inflation is, it’s simple: The government creates more dollars out of thin air, making each dollar in your pocket worth a little less. Inflation is a tax, too. A sneaky tax, but a tax nonetheless.

For every dollar a government spends, a dollar must be taxed. The only exception to that rule is if the government collapses and leaves its creditors unpaid.

In order for Congress to truly cut taxes, it must first balance the budget, then begin cutting that balanced budget. Until and unless it does so, your taxes can only go down in the political imagination, not in reality.

Thomas L. Knapp (Twitter: @thomaslknapp) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

PUBLICATION/CITATION HISTORY

Budgets, Taxes, Deficits and Debt; or, Mulvaney Versus the Math

English: South Carolina State Senator Mick Mul...
South Carolina State Senator (now director of the US Office of Management and Budget) Mick Mulvaney speaking in front of a crowd in Newberry, SC, in August of 2010 during his run for the U.S. House of Representatives. (Photo credit: Wikipedia)

“What you see in this budget is exactly what the president ran on,” US Office of Management and Budget director Mick Mulvaney told George Stephanopoulos on ABC’s “Good Morning America” in late February.

The president’s overall budget proposal is still under wraps and hasn’t been sent to Congress yet, but Mulvaney was making the media rounds to flack for its first big component: A $54 billion increase in military spending.

Mulvaney’s claim is true as far as it goes. Donald Trump ran for president on a promise to “rebuild” the most expensive war machine in the world, a “defense” establishment that hasn’t missed a meal since World War Two and that, if cut by 90%, would still be the first or second largest in the world (depending on what China spends from year to year).

Mulvaney didn’t look very happy about it. I don’t blame him. As Stephanopoulos pointed out, Trump made a few other promises, too — and those promises represent an insoluble math problem for the numbers guy.

On one hand, in addition to the increased defense spending, Trump wants a $1 trillion infrastructure program and he’s pledged not to touch Social Security or Medicare spending.

On the other hand, he’s promised to cut taxes.

Even if his hands weren’t so famously small, they’d have trouble holding on to both sets of promises while juggling two more in the air: He’s promised to reduce the federal government’s annual spending deficit and pay down its gigantic debt.

Yes, the “Laffer Curve” predicts the possibility of increased government revenues from general economic growth after tax cuts,  but those numbers still just don’t add up. It’s not possible to spend more, and tax less, and pay down crippling debt, and bring a runaway budget into balance.

Unless Trump and Republicans in Congress are willing to buckle down and get serious about spending cuts (if you’re not serious about cutting military spending, you’re not serious about cutting spending) Mulvaney’s real job for the next four years won’t be balancing budgets, it  will be making excuses.

Fortunately for Trump, he has considerable relevant business experience that he can bring to bear on the problem.

Unfortunately for the rest of us, that experience is in the casino industry where, no fewer than four times, he spent enterprises into insolvency then left his partners holding the bankruptcy bag.

I predict that his presidency will bring that number to five.

Thomas L. Knapp (Twitter: @thomaslknapp) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

PUBLICATION  HISTORY

Reagan Redux? The Federal Budget Battle Shapes Up

English: A graph of the US GDP compared with F...
A graph of the US GDP compared with Federal budget outlay. (Photo credit: Wikipedia)

It’s Donald Trump’s first work week as president of the United States and already, The Hill reports, he “may be headed into a big fight with Republican lawmakers with his plans for dramatic cuts to federal spending.”

Dramatic cuts? Not really: “Team Trump is relying on proposals outlined last year by the Heritage Foundation in its ‘Blueprint for Balance: a federal budget for 2017.’

The Heritage plan is weak tea. It doesn’t even claim to cut overall government spending, but rather to merely “control the growth” of that spending. And its claim to balance the budget by 2023 is pure sleight of hand. The “primary balance” it mentions excludes interest on existing government debt, which is fast approaching the  half a trillion dollars per year mark.

The  developing Trump plan is the usual tinkering around the edges, searching for “waste, fraud and abuse” in “discretionary spending.” Baby steps like that will never bring the budget into balance, but they’re still too much for Congress.

“Discretionary spending” is politicianese for “spending Congress uses to buy votes back home.”

US Senator Lisa Murkowski (R-AK) and US Representative Don Young (R-AK) blew their stacks when they learned that something called the “essential air program” — a federal subsidy for the rural airports so important to their state — might be on the chopping block.

Mississippi Republicans don’t want to lose one of two federal “catfish inspection programs” that hand out artificial government and regulatory compliance jobs to their constituents back home.

A few Republicans will likely peel away from their party to save some discretionary programs usually associated with Democrats: Legal services for the poor, arts funding, and state-subsidized media.

And then of course there’s the single biggest federal budget line: “Defense,” politicianese for “government contracts for expensive planes, ships and weapons systems that keep my campaign contributors happy and let me artificially inflate my district’s employment statistics.”

If you’re not serious about cutting “defense” spending, you’re not serious about cutting spending. The Trump White House and congressional Republicans want to increase, not cut, that budget line.

Some Republicans point out that a balanced budget is impossible without reforming “non-discretionary” spending — Social Security, Medicare and so forth. They’re right. But they’re also making excuses: They won’t cut the spending that it’s easy to cut unless they can also cut the spending that it’s hard to cut, and come hell or high water they’ll find a way to lose the latter fight.

We’ve been here before. Ronald Reagan came into office with plans to balance the budget while cutting taxes and increasing military spending by going after “waste, fraud and abuse,” too. It didn’t work then and it won’t work now.

One difference: Reagan could fob some of the blame off on a Democratic House of Representatives. Trump doesn’t enjoy that luxury. The Republican Party owns the House, and the Senate, and the White House — they own the entire federal government. For at least the next two years, that means they also own 100% of the coming fiscal failure.

Thomas L. Knapp (Twitter: @thomaslknapp) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

PUBLICATION HISTORY