Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Economic Growth Can’t “Pay For” Republican Tax Cuts and Spending

  by    0   0

One of the favorite Republican talking points is that tax cuts will “pay for themselves” by spurring economic growth. This seems plausible. But GOP talking heads underestimate just how much growth would be necessary to pay for the massive tax cuts and spending increases recently passed by Congress. In fact, the Congressional Budget Office released its analysis Monday and said that the tax cut plan will “balloon” the deficit over the next several years.

And the deficit was already huge to begin with.

According to the CBO, the budget deficit – that’s spending over revenue – will expand to $804 billion in fiscal 2018. That’s up from $665 billion in fiscal 2017. By 2020, the deficit will cross the $1 trillion threshold. When the CBO extends those numbers out over the next decade, the non-partisan agency projects a cumulative deficit of $11.7 trillion for 2018-2027.

That’s nearly $12 trillion more added to the current $21-plus current national debt.

And that’s with pretty rosy growth estimates baked into the analysis. According to the CBO, real GDP will grow by 3.3% in 2018, 2.4% in 2019, and 1.8% in 2020. So, assuming relatively healthy growth with no big shocks to the economy and certainly no recession over the next three years (a pretty unlikely scenario), we’re still looking at trillions in deficit spending.

Now, the Republicans aren’t completely wrong. Tax cuts will, in fact, spur economic growth, according to the CBO. It analysis projects 0.7% growth in economic output over the next 10 years as a result of the tax reform bill. That’s good. But it doesn’t “pay for” the tax cuts.

Of course, the problem isn’t that Congress cut taxes. The problem is that it didn’t cut spending.

On top of cutting taxes, the “fiscally responsible” Republicans just enacted a $1.3 trillion omnibus bill that increased military spending $66 billion over the 2017 level and upped nondefense spending $52 billion more than last year.  As Peter Schiff put it, when the tax plan passed, we got tax relief without government relief.

The national debt currently stands over $21 trillion. The CBO estimated the federal debt will approach 100% of GDP by 2028. And the CBO number is likely understated, as it leaves out a number of factors. Trading Economics calculated the 2017 debt-to-GDP ratio at 105.4%.

This means we won’t see the kind of economic growth Republicans expect. A high debt-to-GDP ratio stymies economic growth. Some studies have shown a debt to GDP ratio of over 90% can retard growth by as much as 30%. Even using the more conservative CBO number flashes giant warning signs. Last year, the CBO issued a dire forecast, saying the number could skyrocket to 150% by 2047 if the trend remains unchecked.

Peter G. Peterson Foundation Michael Peterson told Reuters the CBO analysis “confirms that major damage was done” by the tax and spending bills.

This high and rising debt matters because it harms our economy. During a time of low unemployment and economic expansion, we should be taking reasonable steps to put our debt on a sustainable path – but instead we are piling up trillions of bills.”

When you put the debt into a context of rising interest rates, things look even bleaker. If the Federal Reserve pushes forward with interest rate normalization, it will cost the US government even more money just to make its annual interest payments on the debt. That means Washington will have to borrow even more, creating a vicious cycle of skyrocketing debt and borrowing. And this doesn’t even take the bigger question into consideration: Who is going to buy all of this debt?

The Republicans have made promises they won’t be able to deliver on. Tax reform was great in theory, but we need government reform. As Peter Schiff said after the tax bill passed, as long as the government keeps growing, we are going to have to pay for it – either now or later.

Yeah, I want to lower the top rate of tax, but I also want to make government smaller. I want to reduce government spending so that we no longer need all that tax revenue. But of course, I’ve said that over and over again. This bill provides some people with tax relief, but no people with government relief. Government is getting bigger, government is getting more expensive, so how are we going to pay for it? If we’re not going to pay for it with taxes, well then we’re going to pay for it some other way. But pay for it we will.”

TaxFreeGold.Banner.1000x285

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Inflation By Another Measure

The powers that be insist that inflation is low. In fact, the central bankers at the Federal Reserve tell us that low inflation is one of the reasons they can keep interest rates artificially low. But everyday people who go to the store each week smell a rat. We know our dollar doesn’t stretch as […]

READ MORE →

Silver Expected to Shine in 2020

Silver will shine in 2020 with higher prices supported by expanded physical investment and industrial demand. This is the projection of the Silver Institute in its 2020 Market Forecast.

READ MORE →

Subprime Auto Loan Delinquencies at Financial Crisis Levels

Subprime auto loan delinquencies have exploded, taking the overall delinquency rate to Financial Crisis levels. But the economy is supposedly great. What is causing this spike in delinquencies? According to the latest data released by the New York Fed, serious delinquencies (90 days or more past due) surged by 15.5% in the fourth quarter of […]

READ MORE →

Wyoming Considering a State Gold Depository

A bill introduced in the Wyoming House would establish a precious metals bullion depository in the state. It would not only create a safe place to store precious metals; it could also facilitate the everyday use of gold and silver in financial transactions in Wyoming and set the stage to undermine the Federal Reserve’s monopoly […]

READ MORE →

US Government Kicks Off 2020 With Another Big Deficit

The US government posted another massive deficit to start out calendar-year 2020. According to the latest data released by the US Treasury Department, Uncle Sam spent $32.6 billion more than it took in last month. That compares with an $8.7 billion surplus in January 2019. Analysts had projected an $11.5 billion shortfall in January.

READ MORE →

Comments are closed.

Call Now