Federal Budget and its Deficits
For the next decade, we will be running annual budget deficits equal to about 4.5% of GDP as compared to the last 50 years where it was 2.9% of GDP. The levels of budget deficits will require an increasing share of the federal budget to be spent on interest payments to those who hold Treasury notes and other federal securities. Federal taxes are bringing in revenues of roughly 16% of GDP while federal spending is running at about 20.5% of GDP. The Presidential election in 2020 is crucial to the nation’s financial future.
How did we get here? During the Reagan years of the 80’s, taxes were cut quite dramatically (primarily for the wealthy), spending was not cut nearly as much, and deficits grew. During the Clinton years of the 90’s, taxes were increased and spending was held under control, and we began to run a budget surplus. During the Bush 2 years of the 2000’s, taxes were cut (primarily for the wealthy), and spending was increased for the costs of the Iraq war, deficits grew, Wall St. played games with mortgages, and the economy collapsed leading to the Great Recession of 2008-09 where people lost their homes, their savings, their jobs, their confidence in the nation’s leaders and much more. During the early Obama years, taxes were cut and spending was increased to re-stimulate and rebuild the economy, then spending was cut and taxes (on the wealthy) were increased as the economy recovered leading to a very steep and sharp decline in the budget deficit. Under President Trump in 2017-18, taxes were again cut (primarily for the wealthy and corporations), and we are now facing growing federal deficits.
Going forward, the Trump tax cuts for corporations continue, while in 2025, they expire for individuals leading to a tax increase but not a reduction in the budget deficit. The Trump tax cuts have not produced any growth in American productivity and instead have resulted in corporate stock buybacks, stimulating the stock market on Wall St. rather growing healthy entrepreneurial small businesses on Main St.
At the same time, baby boomer retirements will put increasing pressure on the Social Security and Medicare programs, and the elderly will become an increasing share of the nation’s demographics, and young healthy workers will be a declining share of the nation’s population.
We have to get our nation’s fiscal affairs in order before we yet again wreck our nation’s and the world’s economy. The wealthy will need to pay more in taxes; their loopholes must be closed or capped and their top rates will need to be increased. We will need to stop health care inflation – doctors, hospitals and drug companies. We need to look at some new ways to finance Social Security and Medicare such as a VAT (Value Added Tax). We have to do all this while turning back climate change and reducing our nation’s and the world’s carbon footprint. We need to welcome young immigrants to help strengthen and restore our economy with their hard work and entrepreneurship. We have to adopt family friendly policies so that childbirth, maternity care, child rearing, and early, consistent and effective child education are promoted. We will need to throw out President Trump and his corrupt coterie of aging, out of touch villains, supremacists, nuts and racists, and replace them with young, vibrant, forward thinking leaders of high integrity dedicated to our nation, our ideals, our values and our children’s and grandchildren’s futures.
Prepared by: Lucien Wulsin