(Image above belongs to the Wall Street Journal)
Based on my previous posts, I’m sure you can surmise that I’m disappointed with the election results. Thanks to the anachronism that is the Electoral College, a lower turnout among Democrats who previously voted for Obama, and the voting pattern of White Americans, Donald Trump is now President Elect. I have plenty to say about why this is scaring some people, and I hope that the people who voted for Trump realize that the protests, outrage, and overall atmosphere of fear is not because a Republican won, but because Trump himself basically made a list of people he didn’t like during the campaign, and now people in those groups are worried that he will actually do the things he said they would do. I may write about that later, when I’m feeling more capable of processing it without risking making inflammatory accusations that won’t really do anyone any good.
For this week, I want to focus on the economic implications of a Trump Presidency, mostly because the Trump supporters that I have directly talked to have told me that this was their main motivation. They fear the growing deficit; they don’t like the current state of the U.S. economy. They think American jobs are going away, or being sent to other countries. They are right about these things, to some extent. Where they are wrong, I think, is in believing that Trump can fix any of it. Based on his own plans, he will make all these things worse. And that’s why I sit here, baffled, writing a blog about people, who (in my opinion, which could easily be wrong!) have voted against their own interests.
I’m going to focus mostly on the deficit here, since that’s a big issue among some voters. The image at the top shows the deficit by year. Obama inherited a big deficit jump and then added to it with additional bailouts. You can see where Obamacare kicked in around 2010. It did not increase the deficit spending, which has been shrinking during his Presidency. Also, individual income tax revenues account for about half of the federal revenues (there are corporate taxes, estate tax (which is a VERY small part), etc.). So, there could be other ways to raise revenue, such as increasing taxes on corporations. I don’t think that will happen under the incoming administration. But I’m going to focus on just the income tax plan that Trump has proposed and assume other factors as equal for the purposes of the number crunching that follows.
Let me start by saying that I am personally likely to benefit from Trump’s tax proposals, and the things he says he will repeal in the Affordable Care Act will not directly affect me. In the short run, at least, Trump’s tax policy is supposed to give me somewhere between a 1-2% reduction in my federal taxes. That’s because my individual income (and household) is higher than the national medians. For those below those medians, they are unlikely to see any tax benefits from Trump’s plan, while those in the top 1% are likely to see a 10% or more decrease in their taxes. For more on Trump’s tax plan, see this post.
I am not personally opposed to making more money, of course! Greed is good, or whatever. But I do want to point out that this will result in a loss of federal income of between 2.5 and 4 trillion dollars over a ten year period. Clinton’s proposal would have increased federal revenues by about half a trillion dollars. Again, these numbers are explained in a previous post, but you should research it for yourself.
I really want to emphasize that last part. You have Google. Go research these figures for yourself. Check multiple analyses, and do not trust me or any other person who is not an economist or tax expert to tell you what will happen. I’m stressing this because of a very important observation. NONE OF THE PEOPLE I TALKED TO WHO VOTED FOR TRUMP AS A MEANS TO DECREASE THE FEDERAL DEFICIT KNEW ANYTHING ABOUT HIS TAX PLAN. They simply didn’t look it up. I don’t mean that they got bad data from somewhere. I mean that they just assumed that Trump’s plan, since he’s a businessman, would lower the deficit.
Of course, there are other ways to lower the deficit. Instead of raising revenue, you can lower costs. In fact, if Trump is going to lower the deficit, he will have to cut costs, given the loss of revenues noted above. He plans to do this in a few ways. First, he plans to freeze federal hiring, allowing attrition to lower the federal work force. That means fewer federal employees. If you are a current employee, this doesn’t mean you will be fired. It means that if you retire, your position will not be replaced. It will go away.
This is an odd plan. Imagine if your job did this as a way to cut its work force. Is your job important to the company in some way? I bet you like to think that it is, at least! Now imagine they said that they aren’t firing you, but that if you ever leave, they won’t hire someone else for your position. Very odd way to do business.
Another cost cutting move, I’m guessing, is that he plans to deregulate lots of things. For every new regulation, two others must be removed, according to the 100 day plan (same link as above). Fewer regulations mean less government interference, and enforcing regulations costs money in some cases. So this could cut spending. Similarly, he plans to fast track FDA approvals, which I guess means less work for the FDA, who can now stop testing things so much for safety. That will reduce costs, at least to the federal government. Risky drugs on the market could have other social costs, of course.
He could cut budget items, of course, too. More accurately, he can’t do that, but he could push Congress to do it, and since they are Republican run, they might listen. So what should they cut? A lot of Trump supporters want to cut so-called entitlement spending. This would mean things like TARP (food stamps), various welfare programs, perhaps Medicaid (though not Medicare!!! Never touch that!).
Here’s a link to the federal budget (which has 3.8 trillion to spend in a year, roughly). In order to offset the 2.5 trillion dollar shortfall Trump’s tax plan creates (going with the lower number here, for fairness), we need to cut this pie chart by 250 billion a year. Perhaps we could cut healthcare spending to accomplish this….by cutting ¼ of it. That’s a lot of people who suddenly don’t have healthcare, but OK. That gets us even again.
But the goal is to shrink the deficit. At 250 billion, all we’ve done is offset the tax losses. We need to cut MORE in order to balance the budget and then make up the deficit.
Here is a cool online game that allows you to try to fix the problem: Fix the Federal Budget . Keep in mind that you actually need to increase the funding shortfall, due to the tax losses. Right now, our budget is half a trillion dollars more than revenue. You’ll need to keep in mind that the shortfall will ¾ of a trillion dollars instead. That’s the optimistic version. If the losses are closer to 4 trillion, as estimates say they could be, then you need to find 9/10 of a trillion dollars instead. Almost forgot: the game is using 2014’s budget, which was 3.5 trillion, instead of the 3.8 trillion that I showed in my link to the 2015 budget. That extra 3/10 of a trillion is a big deal and adds to your goal. So, you’re probably looking at a need to cut a full trillion dollars out of the budget, or nearly ¼ of the current federal budget.
If you voted for Trump in order to fix the Federal Deficit, there’s your chance to find the solution. Once you find the correct way to cut spending, send it to Trump’s transition team. That might sound cynical, but I’m actually serious about this. If we are going to fix the federal deficit, these are the facts that have to be faced. If that is one of Trump’s goals, I hope he achieves it without hurting to many U.S. citizens in the process. So, if you have a way to do that, please help!