3/1/2018—I am disgusted by the tax cut. You don’t cut taxes when you are running large deficits, have a 4.1% unemployment rate and have large upcoming bills from an aging population. The predictable result--$1 trillion deficits forever. Oh, and naturally, spending limits were then rescinded. No one is going to give up benefits for the sake of tax cuts that went largely to the rich—where tax cuts have to go since the wealthy pay a lot of the taxes.
What is going to happen is increased inflation followed by higher interest rates followed by a recession. I defended large deficits in 2009, when we were in recession. That was good Keynesian economics. But what do you do in the next recession when you already have $1 trillion deficits going in?
Already, the first signs of inflation have appeared and interest rates have started going up. Therefore, the stock market has already gone down. Enjoying that tax cut? I’ve already lost more in the market than I am going to get back from the tax cut.
The two ridiculous justifications from the right. First, the tax cut will pay for itself. Usually, this line is a fantasy and it is here. Republicans in Congress just repeated it so they could act to cut taxes without a bad conscience. It is a rare situation when cutting taxes brings in more money. Yes, eventually you can get more growth in the economy, but you have related growing federal spending too. You don’t catch up. If it were true, then the tax rate should be 1%--think of the growth you could have. The rare situation can be true when tax rates are so high that they have led to cheating or other avoidances—-the corporate part of the tax cut could have been structured to bring in more money than it cost,from offshore. But the tax cut wasn’t limited to that.
The second ridiculous justification came from right-wing intellectuals. Freedom, they said, does not depend upon deficits, but upon the size of government. Better a $2 trillion federal budget with a $1 trillion deficit than a balanced $4 trillion federal budget.
Two problems with this line of thinking. For one thing, you don’t get reduced spending. You get a $4 trillion budget with $1 trillion in revenue. Worse, you get inflation and recession. These are worse for “freedom” than balanced government spending. Think of what inflation does to the grandmother who has retired. All of her life choices are now constrained. Where is her freedom? Think of the worker who loses his job. Where is his freedom?
But the way, the Democrats were no help here. They don’t care about deficits either. They just prefer to achieve them by unbalanced spending, which they claim will pay for itself—-it also won’t. Their complaint was only that the tax cuts went to the rich.
It would not have been the slightest better if the tax cut had been limited to payroll taxes. There should have been no tax cut at all. I will get some satisfaction from the disaster that this brings. I will say I told you so. But I will be the poorer in money, just like everybody else.
And America will continue her decline. You don’t get national greatness from borrowing. Borrowing means China will eventually determine our foreign policies. She will not have to threaten to sell our bonds on the open market, crashing the dollar. The threat will be obvious.