The government is not supposed to run a budget deficit during periods of economic growth. Even under Keynesian economics, it is only supposed to run a deficit during recessions or depressions. But the budget deficit is rising towards 5% of GDP, even though the last recession long ago ended. The national debt now exceeds $21 trillion. As Chris Edwards of the Cato Institute notes,
The government has been spilling red ink a long time, but the current rash of deficits and rising debt is unprecedented. On the chart, the spending-revenue gap in coming years is large and persistent. But even that is an optimistic view based on steady economic growth over the next decade.
Look at what happened during the last recession and consider that we are overdue for one today. Spending shot up 5 percentage points of GDP from 2007 to 2009 and revenues fell more than 3 points. That recession started after the deficit had narrowed to about 1 percentage point of GDP, but the next one will start when the deficit is already more than 4 points. Also, the last recession started when accumulated federal debt held by the public was 35 percent, but now it is 78 percent and rising.
In February 2018, a bipartisan deal was reached by Congressional leaders to increase both military and domestic spending. As LU noted back in February, this spending deal took America in “precisely the wrong direction,” since domestic spending is already too high, and Pentagon spending includes a great deal of waste. (Here is a list of some wasteful spending that could have been cut instead).
In 2017, Congress enacted a tax cut that reduced both corporate tax rates and individual income taxes, increasing the size of the budget deficit, which was already predicted to reach $800 billion. Some reduction in the corporate tax rate was needed to keep companies (and jobs) from going overseas, but the tax rate was cut more than needed, below the 25% rate needed to prevent most such moves. And the individual tax cuts were completely unnecessary, since American tax rates are not high by world standards, and most Americans have never had a better living standard than they have today.
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The combined result of the tax cuts and spending increases is that the deficit in 2019 will be around $1 trillion. As profligate and irresponsible as the current Congress has been, Democratic political operatives want it to be even more irresponsible. Ronald Klain, the Chief of Staff to Joe Biden and Al Gore, says that there should be “universal health care,” “a $15 minimum wage,” free “college,” “child care & paid fam leave,” and lots of other new entitlements. That would more than double the budget deficit, even if marginal tax rates on the rich were increased to the level that Democrats have proposed.
