Trump's juiced economy, who will pay?

Donald Trump, September 2016 photo by Michael Vadon

Trump's tax cuts were enacted mid-December 2017. They took effect January 2018. The new tax law made immediate changes, including reduced amounts of money employers withheld from paychecks for tax purposes resulting from temporarily reduced tax rates for individuals, and, more importantly, reduced revenues from corporate taxes resulting from permanently reduced tax rates for corporations.

This is government economic stimulus pure and simple. And predictably it has juiced the economy.

At the time of the tax cut in January 2018 the national unemployment rate stood at a seasonally adjusted 4.1 percent, having continuously fallen from a high of 9.8 percent in January 2010, the result of a recovery in the aftermath of the Great Recession that began in 2008.

It was federal government deficit spending over that time period, 2010-2017, that supported and spurred that economic recovery. In 2010 the federal government was spending $1.3 trillion more than it was receiving in tax revenues, a government budget deficit totally appropriate for an economy recovering from such a severe recession. As the unemployment rate fell, federal deficits shrank, to $1.1 trillion in 2012, and then to less than half a trillion dollars in 2016. These deficits helped move the economy towards a full employment goal, and the prudent thing to do once the economy was at or very near full employment was to keep government deficits low.

In 1998-2000 when the economy was at full employment, the federal government actually experienced a budget surplus of as much as $236 billion. That was good, but budget surpluses are not really necessary. What is needed when the economy is operating at full employment, or even near full employment, is that we are not experiencing a growth in our national debt - the sum total or our past government deficits - that is higher than the growth in our Gross Domestic Product - a measure of the nation's total annual national income.

Well now that the Republican tax cut is in effect the predictable has happened, the federal government budget deficit (second calendar quarter 2018) has risen to $1.2 trillion, juicing the economy just when it doesn't need any more juicing, We are likely to have to pay for this down the road.

We will pay for it in higher interest rates, and we will pay for it in higher prices for much of what we buy as inflation creeps up. And our children are likely to pay for it in higher taxes years from now as government debt approaches unsustainable levels. And we may have to pay for it in cuts in Medicaid and Medicare. And maybe, if we are not careful, we may even pay for it in cuts to Social Security.