The increase on taxes on the rich with the Human Infrastructure plan is rumored to cost the average American nothing, but that’s not quite the full story. The long-term implications of the cost of the plan say differently.
Fiscal insanity has been a bi-partisan venture, and it has been for at least the last 20 years. Debt goes up under Republican administrations just as much as Democrats.
Under Donald Trump’s administration, the debt rose by an average of $2 trillion per year. Historically, the debt rose by $1 trillion driven primarily by Social Security, Medicare, and Medicaid as Baby Boomers begin to retire. Broken down, this means that there is an extra $23,500 in federal debt for every person in the country.
Only two other presidents have come close to spending as much, George W. Bush and Abraham Lincoln, both of whom oversaw extraordinary circumstances during their presidencies.
One of the things that drove up the debt was the Covid-19 crisis, but the debt had already soared to grave levels prior to the pandemic.
Trump cut taxes but didn’t do anything to cut spending, and this caused debt to soar to unprecedented levels. The national debt is now at the point where it’s higher than it was at the conclusion of World War 2. The difference is that we could demobilize after WW2 but we can’t avoid the primary expenses looming over the nation now.
A common myth that many people believe is that we can grow our way out of the national debt. The debt is growing at an extraordinary rate and there is no way for revenue to grow in comparison.
The tariffs Trump introduced were believed to help eliminate the budget deficit and pay down the national debt, but that was not the case.
The Trump tax cuts were primary drivers of increasing the debt, when combined with a lack of cuts to spending. The tariffs also had a minimal impact on the debt once it had been allocated.
The fiscal gap and the national debt are so large that the idea of taxing the rich pales in comparison. Taxing the rich, even at 100% levels, it’s only enough to pay the interest on the debt and fund a couple of programs for a few weeks.
There are huge fiscal unsustainabilities in the scope of the federal government’s budget.
By early 2019, Trump was telling the American public that the national debt was a grave threat to economic and societal prosperity. Other officials began sounding the alarm as well.
Historically, we have racked up debt but with good excuses for doing so. This time we accumulated debt when the stock market was booming. When every other country was getting their house in order, we continue to pile debt onto the national credit card.
We are currently at 130% debt-to-GDP and for most economists, alarm bells are going off. The reason why now is different from WW2 when we had similar levels of debt is we are now funding social programs that are slated to grow dramatically in the near future.
The real issue is the cost of the interest on the debt. Most of the debt has been financed in the short term and will have to be refinanced. If interest rates go up in the interim, the cost of that interest is going to skyrocket and consume the federal budget.
Low-interest rates are manageable now, but if and when that changes in time, the risk becomes greater.
Blame can be laid on both sides of the aisle, but if you’re a Republican you need to acknowledge that the Trump administration accumulated a record amount of debt in a short time period. If you’re a Democrat, you need to insist your representatives show some leadership regarding the fiscal future of the country.
Social programs like Social Security, Medicare, and Medicaid are driving the debt and unless something is changed the problem will only escalate. This will only increase the likelihood and magnitude of higher tax rates in the future.
Mentioned in this Episode:
Donald Trump Built a National Debt So Big (Even Before the Pandemic) That It’ll Weigh Down the Economy for Years – https://www.propublica.org/article/national-debt-trump