military spending

The Curiously Missing Debate on the US Economy

President Trump focuses on immigration and tariffs and only occasionally cites strong US economic performance. Democratic presidential candidates are trying to win over primary voters by discussing issues such as universal health care, college debt and social justice. The result is a missing debate on the state and future of the US economy, which polls show is the top priority of a majority of voters.

President Trump focuses on immigration and tariffs and only occasionally cites strong US economic performance. Democratic presidential candidates are trying to win over primary voters by discussing issues such as universal health care, college debt and social justice. The result is a missing debate on the state and future of the US economy, which polls show is the top priority of a majority of voters.

A surging stock market, continued job creation and historically low unemployment have led to rising levels of public approval of Donald Trump in the polls. 

On the flip side, soaring federal budget deficits, protracted trade wars affecting industrial and agricultural sectors and tariffs threatening higher consumer prices are posting warning signs of an impending downward economic cycle, perhaps just before the 2020 election. 

Despite the stakes, bread-and-butter economic policy has taken a decidedly back seat in political debates, even as polling shows the economy remains the top priority of voters. 

Skillfully or impulsively, President Trump focuses on immigration, ‘creeping socialism’ and denigrating Democrats, while only occasionally praising the economy he’s overseen for 2½ years. Democratic presidential candidates, many seeking to curry favor with the increasingly restive progressive wing of the party, talk about health care, immigration reform, college debt, wealth taxes, climate change, social justice and Trump. 

Democrats also campaign in the shadow of the Mueller report and growing calls to impeach Trump. At times it seems as if Trump and his media allies egg on articles of impeachment, which face an uncertain fate in the Democratic House, but certain death in the Republican Senate. 

Absent in most Democratic stumping is any serious, sustained criticism of Trump economic policy. If criticism was to occur, this is what it might look like: 

Budget Deficit: According to the Treasury Department, the federal budget deficit ballooned 77 percent in the first four months of 2019 to $310 billion, up from $176 billion during the same period a year earlier. That period included the largest single month deficit. One reason for the larger deficits was a sharp drop in tax revenue, attributed to the Trump tax cuts. Meanwhile, federal spending has increased 9 percent, including a 12 percent hike in military spending and a 16 percent rise in Medicare outlays.

The Congressional Budget Office has projected a $900 billion deficit this fiscal year. The Office of Management and Budget, which is overseen by the Trump administration, projects the deficit will reach nearly $1.1 trillion – and keep rising through the 2020 fiscal year.

The Trump administration has not pushed very hard for federal spending reductions, settling instead for sending Congress a budget with cuts to Medicare, Medicaid and Social Security, which are political non-starters.

Trump has seemingly walked away from his promise of a major infrastructure investment plan. His own advisers have warned he cannot boost military spending and build new roads and bridges at the same time, especially when congressional Republicans appear unwilling to vote for the taxes to pay for upgraded infrastructure.

The political punch: The economy is cruising along, but only because it is fueled by the equivalent of credit card debt on steroids. The tax cuts and spending spree have effectively ruled out long-term investments in roads and bridges. 

Trade Wars: True to his campaign promise, Trump has upset the trade apple cart by imposing tariffs, first on steel and aluminum, then more generally, with a special gusto for Chinese imports. Trump also has selectively imposed sanctions on Iran and Venezuela. His trade team succeeded last year in negotiating an updated version of the North American Free Trade Agreement, but it still hasn’t been approved by Congress.

The Congressional Budget Office shares its data about federal deficits, budget and revenue projections and marginal tax rates, as well as statistical information about many specific federal programs. If you want to be the smartest person in the room when it comes to the economy, check this out:  https://www.cbo.gov/publication/54918 .

The Congressional Budget Office shares its data about federal deficits, budget and revenue projections and marginal tax rates, as well as statistical information about many specific federal programs. If you want to be the smartest person in the room when it comes to the economy, check this out: https://www.cbo.gov/publication/54918.

Trump claims his tariffs have revived the US steel and aluminum industries and produced substantial revenue. The nonpartisan Tax Foundation confirms tariff revenue reached $70 billion by the end of May 2019, while reducing the US Gross Domestic Product by $50 billion, lowering wages by .13 percent and resulting in a loss of nearly 156,000 American jobs. 

The Tax Foundation also computed the impact of tariffs Trump threatened to impose against China, automobiles and Mexican products. Estimated revenues would exceed $154 billion at a cost of $112 billion in lost GDP, .3 percent decline in wages and loss of nearly 350,000 US jobs.

Then there are retaliatory tariffs by the European Union, India, Turkey, Mexico, Canada and Russia. The US treasury receives no revenue from these tariffs, but lost GDP from them tops $21 billion, wages decline .05 percent and some 67,000 jobs disappear. 

“If all tariffs announced thus far were fully imposed, US GDP would fall by 0.74 percent ($184.07 billion) in the long run, effectively offsetting about 44 percent of the long-run impact of the Tax Cuts and Jobs Act. Wages would fall by 0.48 percent and employment would fall 570,591,” according to the Tax Foundation. 

The tariffs have worked a particular hardship on American farmers who have seen foreign markets evaporate, income nosedive and price increases for new equipment. The Trump administration conceded the impact on farmers, won approval for a $12 billion bailout and is seeking another $16 billion to aid farmers. Adding injury to insult, the major beneficiaries of the first bailout flowed to larger corporate farms, not family farms and “patriot farmers.”

The political punch: Tariffs are taxing Americans, raising prices, lowering wages, hurting farmers, losing jobs and posing a threat to continued economic growth. And, they haven’t resulted, at least so far, in great trade deals either.

Looming Downturn: Signs are emerging that an economic downturn may be on the horizon. Economists warn an escalating trade war combined with slowing growth in China and internationally could tip the economy into recession.

There also are troubling indicators.

  • Historically and ironically, recessions occur just when retail sales, industrial production and employment peak, as they have. Household wealth and income also peak just before a downturn.

  • Another historical indicator of recession is when interest rates on long-term bonds are lower than interest rates for short-term bonds for three continuous months, as just happened. This isn’t just a US phenomenon; it is occurring in bond markets around the world. 

Sensing the possibility of a declining US economy heading into an election, Trump has been hectoring Jerome Powell, the man he chose to head the Federal Reserve Board, to cut interest rates. After resisting such action, Powell in congressional testimony last week hinted an interest rate cut may be in the offing as early as this month. 

Powell told Congress, “Based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook.”

The stock market was ecstatic and hit new record highs. Critics warned an interest rate cut now will limit the Fed’s ability to combat a recession when it inevitably occurs.

The political punch: With increased deficit spending, continuing tariffs and a demand for lower interest rates, the administration is playing with fire, dousing a fire and trying to light a fire all at once.

You heard it here, even if you won’t hear anywhere else.

 

Some Hate, But Most Love the FY 2018 Spending Spree

Overriding fiscal hawks and rebuking President Trump, the bipartisan congressional FY 2018 spending package sweetens a lot of federal funding pots and will set up a shopping spree to get the money spent before the fiscal year ends this fall.

Overriding fiscal hawks and rebuking President Trump, the bipartisan congressional FY 2018 spending package sweetens a lot of federal funding pots and will set up a shopping spree to get the money spent before the fiscal year ends this fall.

Fiscal hawks hated it. President Trump said he would never sign another bill like it. Pundits said it was a rebuke to President Trump’s priorities and reflected poorly on his reputed negotiating prowess. Just about everyone else thought it was great.

The $1.3 trillion Fiscal Year 2018 spending bill gave new meaning to the word “omnibus.” Not only did it cover the waterfront of federal activity, it sweetened most of the federal spending pots, which is expected to energize efforts to get the money out the door by September 30, the end of the fiscal year, with the eager assistance of Members of Congress facing tougher-than-usual re-election battles.

Defense spending went up sharply, but there also were significant spending bumps for a variety of programs from community development block grants to funding for buses, a priority for The Bus Coalition. Rural areas will benefit from a tripling of grant money for rural TIGER projects, nearly $1 billion for rural water and sanitary waste projects and $685 million for rural broadband. The Secure Rural Schools program, almost given up for dead, was extended for another two years, benefiting Pacific Northwest interests.

Despite giddiness over the spending spree anticipated by passage of the spending package, there is a sober recognition this could be the last significant action by Congress until after the mid-term election in November. Results from special elections and President Trump’s lagging popularity have excited Democrats while alarming Republicans that control of one or both houses of Congress could flip, creating even more roadblocks to Trump’s agenda.

The combined fiscal effects of the GOP tax cut and the FY2018 spending measure may pour cold water on what will likely be equally generous FY2019 appropriations. In February, Congress agreed to similarly large topline spending levels for both defense and domestic discretionary spending for FY2019. A budget in hand this early typically greases the wheels of the appropriations process, but some congressional observers predict Congress will punt major spending decisions until after the November election to avoid defending an unpopular vote on the campaign trail.

The President complained the omnibus spending package contained a lot of “giveaways” to gain Democratic votes. In addition, the measure didn’t include a lot of Trump priorities, from his border wall to steep cuts in the Environmental Protection Agency, State Department and National Institutes for Health. It did include provisions blocking private school vouchers and increasing the budget for after-school programs and student mental health services and violence-prevention initiatives. And several regional projects were salvaged, such as $300 million to remove toxic sediment from the Great Lakes and $73 million to restore Chesapeake Bay, both of which were Target administration targets.

Major policy issues, including action on the tenuous situation for so-called “Dreamers,” were notably absent. The package managed to sneak in two provisions related to gun violence, presumably to forestall a more public discussion of the issue. One provision will increase incentives for federal agencies and the military to upload records into the background-checking system used for gun purchases. The second lifts the ban on Centers for Disease Control conducting research on gun violence, but provides no funding for it. Such research has been blocked by the Dickey Amendment, named after a GOP congressman who sponsored it, but later changed his mind.

The negotiations that led to the spending package became a focal point for criticism. Conservative commentator Ann Coulter ripped Trump for failing to achieve his primary priorities even though he touted his negotiating skill in his presidential campaign. Coulter’s criticism was echoed by Senate Democratic Leader Chuck Schumer who clucked that Trump had been out-negotiated. Earlier, he compared negotiating with Trump to Jell-O.

In an odd postscript to the spending deal, Trump has privately pressured the Pentagon to divert some of its enlarged budget to build his border wall.