Critics say the Trump tax plan won’t “be paid for!” and “will explode the deficit!”
Total national debt was $5.6 trillion when President Bill Clinton left office in 2001; $10 trillion when President George W. Bush left in 2009; and about $20 trillion when President Obama retired in January, 2017.
The national debt was 34 percent of GDP in 2000. It is now 77 percent of GDP.
Based on current CBO projections, another $10 trillion in debt is expected to be added by 2027 if nothing is done to change our national finances. Debt owed to the public is expected to be $25 trillion in 2027 whether Donald Trump was elected president or not.
It is just baked in the cake already. Mostly due to entitlement spending and compound growth. Anything Trump and Congress does has to be measured against that $25 trillion in debt by 2027 standard.
Here are the important parts of the Trump tax plan as outlined:
Corporate tax rates would fall from 35 percent to 15 percent. “S corporations” would also enjoy the 15 percent rate. Individual income tax rates would go from 7 brackets down to just 3 and the rates would be 10 percent, 25 percent and 35 percent. Standard deductions would roughly double from $12,600 for married couples to $24,000. All tax deductions, credits and exemptions would be eliminated, save for deductions for mortgage interest, retirement savings and charitable giving.
Elimination of all tax breaks, referred to as “tax expenditures,” except for the three mentioned above, would yield $1 trillion in new tax revenue annually.
In order to not add to the debt, or the $10 trillion already expected to be incurred, tax writers are going to have to find as many tax deductions to eliminate in order to make up for lost revenue from tax rate cuts.
Or they are going to have to find a commensurate amount of spending reductions from the baseline (which are not real, absolute cuts but rather a slowing of spending in the out-years).
Which is where the “Repeal and Replace Bill to Eliminate Obamacare” comes in.
If you don’t want to see so many tax deductions eliminated, the only place left, if you care about reducing annual deficits, the national debt and generally the size of government, is to CUT FEDERAL SPENDING SOMEWHERE! ANYWHERE!
The first draft of the Republican health care bill to replace Obamacare had close to $1 trillion in spending savings in it. That is a good place to start.
The more “debt-neutral” this tax bill can get, the better it will be for all of us in the long run. Eliminating hundreds of special tax provisions for this industry or that business sector is a good thing, especially since cutting tax rates is expected to contribute to a revving up of our economy.
Do you think a national debt about the size of our U.S. GDP is OK and manageable? That is the question.
Former Federal Reserve Chairman Alan Greenspan used to dryly intone, in my paraphrase:
We know at some point in time, all nations in history that have over-spent their revenue base and built up unmanageable levels of national debt have suffered rampant inflation, severe depreciation of their currencies, sky-high interest rates and a collapse of their previously-working economic system.
The problem is, once a nation realizes it is past that point, it is too late to do anything about it. Cutting spending, increasing tax revenue, preferably through a growing economy and balancing the federal budget now is far preferable to rolling the dice later.
We have to choose wisely. Now.
Frank Hill is the director of The Institute for the Public Trust in Raleigh.
