While Democrats like to blame the Trump tax cuts for recent deficits, the fact is that federal tax revenues increased in both FY 2018 and FY 2019. Deficits grew because spending outpaced revenue growth. Rather than worsening deficits, the Trump tax cuts might actually have helped prevent larger deficits by averting a recession.
After all, the world economy is slowing; and had the U.S. economy gone into recession, then tax revenues would have almost certainly declined — and the deficits probably would have been larger.
Nonetheless, the rising debt, now $23 trillion, is a threat to our national security and our economy, and it must be addressed. That is why Congress should, at a minimum, freeze spending for the next three years to allow time for revenues to catch up with expenditures.
Nearly two years have passed since the Republican Congress passed Trump’s tax cuts; here are some key numbers from the two fiscal years that have ended since that time. In FY 2018, federal revenues increased by about $14 billion while spending increased by over $120 billion. In FY 2019, revenues increased by over $130 billion while spending rose by nearly $340 billion. So the growing deficits are not the result of federal revenues dropping, but rather Congress’s unwillingness to align spending with income.
With the national debt rising, interest on the debt is rising too. In FY 2019, interest on the debt cost taxpayers over $574 billion. Just how much is $574 billion? It is more than nine different Cabinet agencies are estimated to have spent in the last fiscal year. Those nine agencies are the Education Department, the Energy Department, Homeland Security, Housing and Urban Development, the Interior Department, the Justice Department, the Labor Department, the State Department, and Veterans Affairs. Of course, it is important to remember that interest rates are very low right now, but that could change causing interest costs to spike.
The nation’s debt is an existential threat to the nation. Nearly a decade ago, the Chairman of the Joint Chiefs of Staff, Admiral Michael Mullen, declared, “The most significant threat to our national security is our debt.” Obviously, the national debt has only gotten worse in the intervening years. As interest on the debt continues to consume a larger and larger portion of the budget, it will crowd out necessary spending for national priorities, including defense.
High levels of debt also slow economic growth. Part of the reason for this is that when investors put their money into government bonds, there is less money available to invest in new and growing businesses. This phenomenon may help explain why the U.S. economy has not grown faster in recent years in spite of generous tax cuts and regulatory reform.
While the national debt and interest on it is growing, we are also facing a looming gap between the funds available and the funds needed to pay Social Security and Medicare benefits. In fact, according to the latest report from the Trustees of the Social Security and Medicare trust funds, the Social Security trust funds will be depleted by 2035, and the Medicare Hospital Insurance Trust Fund will be depleted by 2026. The Trustees also project that next year, for the first time in nearly forty years, Social Security will pay out more than it will take in.
With the national debt over $23 trillion, Baby Boomers retiring, and Social Security and Medicare Trust Funds running out of money, we simply cannot afford to keep adding hundreds of billions of dollars a year to the debt. To begin to address this problem, Congress should, at least, freeze spending through 2022.