Budget, taxes and the economy
Congress never passed any of President Obama’s budgets. Let that sink in.
President Trump has released his first budget proposal. Critics cry that Trump is
“cutting” the budget, giving tax breaks to the 1-percent, and taking money away from the middle class and poor.
There’s Washington (media and politics) and then there’s the rest of us. We live in the real world where we work for our income and pay our bills on time. Washington doesn’t do this. Working for income and paying bills are foreign concepts to Washington. That’s why our national debt is nearly $20 Trillion, and our obligations are closer to $200 Trillion. Those numbers are too large to grasp.
The rest of us need to learn Washington’s code words. For example, when Washington (media and politics) uses the word “cut” in conjunction with “budget,” that’s code for “slowing the growth.” In other words, when Washington says President Trump is “cutting” money for “vital programs,” that means he is lowering the rate of growth. Some budget items have grown more than 10-percent each year. Trump’s budget reduces the rate of that growth.
In 2016 our national GDP (Gross Domestic Product) was $16.5 trillion, revenue was $2.99 trillion, spending was $3.54 trillion, leaving a $552 billion deficit for the year, or 3.3 percent of total GDP last year. During President Obama’s two terms annual deficits averaged 5.8 percent of GDP. That’s very high!
President Trump’s proposal would raise spending above $4 trillion for FY 2018! How’s that for a cut? Like most budget proposals, Trump’s budget projects revenue and spending over the next ten years. If the numbers work (and that’s always a big “IF”), we could balance the budget by 2027. That’s a noteworthy goal!
You’ve probably heard or read that Trump proposes to lower taxes and generate increasing revenue. How does that work? Well, if you were to find $100, what would you do with it? Spend it or save it? Most would spend “found” money. Same is true with tax dollars. If businesses and individuals paid lower taxes, they’d have more money to spend. When people spend more money, GDP goes up. And, when GDP goes up revenue goes up.
Washington has rarely understood this economic principle. Under Obama our economy grew by a paltry 1.5 percent annual average. Washington has normally followed Keynesian, i.e. socialist economic theories that say raising taxes raises revenue. No, raising taxes stunts economic growth. We’ve seen that for a decade now. Slow economic growth stunts jobs, wages and salaries. Keynesians say government can grow the economy by spending money. Remember when Obama signed the nearly $1 trillion stimulus package to fund all the “shovel-ready” jobs? Within six months, unemployment skyrocketed above 10-percent. So much for stimulating “shovel-ready jobs.”
To be fair, Trump is proposing to spend more money on infrastructure. He’s not doing that to stimulate the economy. He’s doing that because our infrastructure has deteriorated to dangerous conditions.
Trump’s plan to stimulate the economy is to let taxpayers and businesses keep more money. When people and businesses spend more money, the economy grows. When government spends more money, the economy stagnates.
The biggest problem we face regarding taxes and the economy is Washington. Politicians and bureaucrats are in charge. They have no incentive to slow the growth of government, much less cut anything.
Daniel L. Gardner is a syndicated columnist who lives in Starkville, MS. You may contact him at PJandMe2@gmail.com, or interact with him on the Clarion-Ledger web site http://www.clarionledger.com/story/opinion/