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It’s no secret that the two dozen or so 2020 Democratic presidential candidates are promising a slew of new and expanded government programs that are often “universal” and “free.” Americans should be skeptical when they hear these buzzwords, which are code for “rationed” and “expensive” when Democratic presidential candidates talk about "Medicare for all," the so-called Green New Deal, and free college.
Democratic presidential candidates will list their new proposals without any pay-for aside from “taxing the 1 percent,” then proceed in the same breath to criticize Republicans for growing the deficit by way of tax cuts. That’s right, 2020 Democrats have the audacity to blame the federal government’s ballooning deficit on the notion of middle-class Americans getting $1,000 on average in tax breaks thanks to the Tax Cuts and Jobs Act of 2017. Not only do Democrats have it wrong on the primary drivers of the deficit, but their argument that Republicans have caused the deficit by cutting taxes is made completely in bad faith.
This week, the Treasury Department reported that the deficit has increased by 23% during the current fiscal year to a burgeoning $747.1 billion, and the fiscal year isn’t even over. But in the same period, federal tax revenue increased 2.7%, while spending grew by 6.6%. That’s right, even with tax cuts, federal tax revenue has grown, while spending continues to grow at a startling rate.
Clearly, the federal government doesn’t have a revenue problem; it has a spending problem.
According to the Congressional Budget Office, federal tax revenues will reach nearly 20% of GDP by 2049. However, because spending growth is expected to far outpace revenues, the deficit will grow to nearly 9% of GDP by the end of the 30-year window reviewed by the CBO, which will crowd out private investment and hamper economic growth, and our debt-to-GDP ratio will hit 144%. Greece began experiencing severe economic problems when its debt-to-GDP ratio exceeded 100%.
Sadly, the grim outlook heralded by the CBO is a best-case scenario. Should the U.S. economy enter a recession, which is, of course, likely at some point with the natural fluctuation of the economy, the deficit and the debt will grow even higher.
But Democrats still think we aren’t taxed enough, nor is the government spending enough. Mandatory spending in the form of entitlement programs, as well as interest on the publicly held debt, are the two primary drivers of our ballooning deficit, yet 2020 Democrats want to expand entitlement programs and raise taxes, regardless of the long-term outlook.
Just a slight change in interest rates, such as during a recession, would have a severe impact on long-term fiscal sustainability by pushing the deficit and debt even higher. Lower interest rates would also lead to reduced investment as more Americans buy treasury bonds in an attempt to salvage their savings, resulting in economic contraction. At the same time, low economic growth would see tax revenue decline, further increasing the deficit. It’s a vicious cycle that is lurking just around the corner so long as entitlement spending and interest on the debt are left unaddressed. But Democrats, and unfortunately many Republicans, don’t seem to care.
For all the 2020 Democratic candidates’ talk of raising corporate and top marginal tax rates, the history of federal tax revenue tells us this would be an exercise in futility. Even during the mid-20th century, when the top marginal income tax rate was 96%, federal tax receipts never eclipsed 20% of GDP. If we’re on course for revenue that nears 20% of GDP with low taxes, I don’t think Americans see the need for a left-of-Bernie Sanders tax hike.
But what if rather than ignoring the deficit crisis, we just came out and said it wasn’t a problem altogether? That’s what proponents of modern monetary theory are saying when they advocate for controlling our budget by printing more money. Rising stars among House Democrats who suggest something so outlandish as modern monetary theory might want to take a prolonged vacation to Venezuela rather than read a Voxplainer on the issue.
Not only are Democrats lying about the current state of the economy, the fact that they are proposing massive increases in spending demonstrates their profound ignorance of why we are saddled with a looming fiscal sustainability crisis. Interest on the debt and out-of-control spending are the primary drivers of a ballooning budget deficit, not widespread tax cuts for hard-working people. There’s no remedy for the deficit crisis other than to get our fiscal house in order by addressing the primary source of the problem.
This starts with acknowledging what is to blame: spending. So far, none of the 2020 Democratic presidential candidates have done just that. Will they? Don’t hold your breath.