Budget Thoughts

The ‘big, beautiful bill’ that Trump is pushing through congress is on its way to the senate, where, unlike the house, there is a tiny bit of spine left in republicans and the possibility that there may be significant changes before it becomes law.  But that is probably a bit of wistful optimism.

What does this bill accomplish?  First, it preserves the tax cuts that a republican-dominated congress pushed through under Trump in 2017.  These tax cuts were passed with the promise that they would stimulate growth and more than compensate for their cost.  The deficit grew from 0.67T in 2017 to 0.98T in 2019, so this was clearly wrong.

 

Republican orthodoxy has always insisted that tax cuts will stimulate economic growth and tax increases will hurt the economy.  The logic behind this is that tax cuts put more money in people’s pockets to spend and also to invest.  But the truth is harder to discern and most economists disagree with this assumption. 

And here is an observation that is anecdotal, but very likely valid:  a large percentage of my generation, the baby boomers, is much wealthier than my parents were.  We have more money, more wealth than we really deserve to have.  We don't need new tax cuts. If you look around at today's opulent homes, the restaurants that are full every night of the week, the travel and shopping catalogs that bulge in our mailboxes and the massive cars that we drive, it is all too clear that a significant part of our society is disproportionately wealthy when compared to the bottom half.

 

If most of the tax cuts go to the wealthy, who already have high net incomes and extensive investment portfolios, then how is that money actually used?  Do the rich buy more and more things and stimulate the economy?  Do they invest in more start-ups?  It seems to me that there is a point of saturation, where additional income and wealth to the top 20% have little positive effect on the economy and merely ratchet up the equity and real estate markets, where the rich store their vast wealth.  

 

What seems more likely to stimulate the economy is putting money into the hands of the bottom 50%, whether through tax breaks, social programs, infrastructure improvements or redistribution scenarios.  That group will definitely spend all of that money.

 

The Trump budget also seeks to somewhat compensate for the tax cuts by slashing various so-called entitlement programs, with Medicaid and SNAP being two of the biggest targets.  These programs have long been vilified by the right.  The impact of these reductions on poverty, health, hunger and basic social safety net issues could be disastrous, but the MAGA world believes that fraud and abuse are rampant in these programs and is rabid to push their cost-cutting agenda as a far as possible while they still have majorities in congress.

 

This ‘big, beautiful bill’ has a deficit price tag of $3.8T over the period from 2026-2034 (non-partisan analysis from the congressional budget office), which is ironic, considering the hysteria from the right during the election cycle over the national debt.  But this kind of hypocrisy is not new – Reagan, both Bushes, and Trump all increased the budget deficit after railing against it to win the office.

 

The budget decreases in tax revenue will no doubt decrease the IRS budget further, which will allow the estimated $600B of annual individual tax cheating to continue.  Furthermore, there appears to be no will to force corporations to pay taxes on profits that they earn in the USA but manage to transfer to low-tax havens like Ireland.

 

So, all in all a pretty amazing level of incoherent nonsense in this budget.  But all a budget has to have to make it big and beautiful for the MAGA world is the words ‘tax cuts’ and ‘defense increases’.  A big, beautiful golden dome is the cherry on top.  It should complete our isolationism and protectionism.  But beware, we don’t exist in a vacuum and the way that the rest of the world reacts to our lunacy may yet rain heavily on the MAGA parade.