Donald Trump is going to build a big, beautiful deficit and rely on China to help pay for it ... Green Rules apply
Republicans’ tax plans are going to clash headfirst with President Trump’s anti-China, anti-trade-deficit rhetoric. It's just simple economics.
Treasury Secretary Steven Mnuchin speaks during a briefing on April 26.
To cover a revenue shortfall that would follow tax cuts, the Trump administration and its successors
will be issuing additional Treasury bonds for decades to come.
Jabin Botsford/The Washington Post
Assuming they pass, Republican tax plans are forecast to increase the federal debt by about $1.3 trillion to $1.6 trillion over the coming decade, though scoring and specifics vary. This is the same debt that, campaigning in Ohio, Trump called “a weight around the future of every young person in this country.” As the debt grew under his predecessor, Trump didn’t mince words:
And he didn't stop once he was elected:
But now that it’s time to pass a tax plan that nonpartisan observers agree will require deficit spending, Republicans are on board with growing the federal debt. Large-scale borrowing will help make up the gap in lower tax revenue while avoiding some painful cuts to government programs.
To cover that shortfall, Trump’s government and its successors will be issuing additional Treasury bonds for decades to come, with Eric Toder, co-director of the Tax Policy Center, posting that one version of the bill would grow the debt as a share of the economy by 6 percentage points by 2017, and 10.1 percentage points by 2037. About half of those bonds will end up being held abroad, according to Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.
Treasury data compiled by the St. Louis Fed shows that foreign central banks, investors and corporations already own $6.17 trillion in Treasury bonds in the second quarter, compared with $5.73 trillion for private domestic investors. More than a third of those international investors are based in two countries: China and Japan.
China, which in combination with Hong Kong held $1.38 trillion in September, is America’s largest foreign creditor, and its role is increasing as it resumed Treasury bill purchases earlier this year.
Those trillions in foreign financing don't appear out of thin air. There's another side to that balance sheet, and it's one Trump likes even less.
How the Republican tax cut could aid foreign competitors and grow the trade deficit
Republicans say the cuts are intended to increase economic and employment growth, but there are many signs the economy is already firing on all cylinders. For example, the unemployment rate is at 4.1 percent, and economists don't think it can go much lower.
Meanwhile, the economy has been growing at 3 percent in recent quarters; economists don't think it can grow much faster (or even maintain that speed for much longer).
A tax cut would inject more money into this fairly hot economy — effectively putting more money into a container that’s nearly full.
“It is going to put quite a bit more money in people’s pockets,” said Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics.
The extra money has to go somewhere. Some of it might be saved by individuals and corporations. But the U.S. has a fairly low saving rate overall. That means the money is likely to go abroad — in the form of Americans buying goods and services.
When Americans buy those goods and services, they'll give dollars to foreign countries. Those dollars can then in turn be used to provide loans to the U.S. to finance the tax cut.
This economic cycle increases the trade deficit. Academic research has shown that deficit spending leads to bigger trade deficits. The IMF has found that each additional dollar of deficit spending leads to about 60 cents of trade deficit.
By that math, $1.5 trillion in additional borrowing to fund the tax cut would increase the trade deficit by $900 billion.
Trump's team has tried to explain the contradiction, arguing the tax plan would increase domestic investment in the U.S. and eventually increase exports — attacking the trade deficit from another direction.
“The way we mainly wish to reduce the trade deficit is by increasing our exports as opposed to constricting imports,” said Commerce Secretary Wilbur Ross at the Wall Street Journal CEO Council. “That way you have more total trade and you have a reduction in the deficit.”
Taken alone, the trade deficit isn't a very useful indicator of economic health. A country can thrive even if it's running a deficit and starve during a surplus.
But Trump built a campaign around using trade deficits as a measure of whether America was “winning” or “great.” Now that he's in a position where his policies will have a clear effect on that measure, he's dealing with the reality that some of his promises hurt other ones.
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When have the spend like crazy left wingers EVER been concerned with the debt and/or the deficits.
LOL!
If you are really interested, the data is easy to find. Since Reagan, Republicans have blown up the deficit and Democrats have restrained it.
... but I doubt you're interested in reality...
I’m going to Disney World tomorrow. It’s going to be magical.
Thanks for the green rules, Bob!
Great. Write an article about it.
I'll post about China. 😉
Why would Democrats give two cents about the deficit after running the highest deficits in history?
Too foolish to reply to...
And yet, you did.
Weird.
Your reply speaks for itself. Epic deflect!
Deflect!
Not at all. You seem worried about deficits. Were you worried when Dems ran the highest in history, or were you strangely silent since it was the Dems?
Second deflect!
Not according to the green rules.
You can't answer cuz you know you're wrong.
Exactly! According to Green Rules, one may answer in any way one wishes. Truth, lies, fiction, whatever. Not that members answer any differently in the absence of Green Rules...
Obama cut the deficit by 2/3rd's and we actually had a surplus under Clinton... Now what was that you were saying?
Oh my, oh my... the pointless exercise of supplying data...
Our Right Wing Hate Warriors do not care about your data. they do not need any data. Data is irrelevant to them... because they know. Their knowledge is beyond data! It is faith!
Um, I SAID Democrats ran the highest deficits in history, and that is a fact easily seen by anyone who cares to see it.
I just posted factual data that completely proves you wrong.
Yeah, his chart totally supports my claim!
2009, 2010, 2011, 2012==highest in history.
Thanks!!!
Um, NO, your chart proves me right. Look at your chart. What are the 3 or 4 highest deficits??????
Sometimes y'all make this all too easy!
LMFAO!!!!!
That's either incredibly bad faith or incredibly ignorant.
Okay, YOU look at his chart and tell us all what years the highest deficits occurred in.
Come on, you can do it!
Can you tell us in what years the highest deficits for the US government were run?
Or will you cut and run?
Can anyone anywhere please explain how the chart above proves the Democrats did NOT run the highest deficits in history?
I keep looking at it, and it verifies the fact that Dems ran the highest in history.
It was probably "compiled" by the last administration, then flipped and mislabeled in a feeble attempt to make themselves look good. If you flip it, it reflects what happened a bit better but not entirely.