Why you haven't heard about the growing deficit
Michael Linden is the executive director of the Groundwork Collaborative and a fellow at the Roosevelt Institute. The opinions expressed in this commentary are his own.
Earlier this month, President Donald Trump released his 2021 budget proposal. It is likely going nowhere in Congress, since Democrats control the House of Representatives. But for the economy’s sake, we should be glad that the president’s budget has no shot at passage. It is full of outdated ideas that would instantly weaken the economy and undermine our ability to grow and prosper over time. If enacted, it would be an economic calamity.
To start with, President Trump proposes massive immediate cuts to the kinds of public services, protections and health care that help propel short-term economic growth by supporting demand for goods and services. In fact, according to the Brookings Institution’s Hutchins Center Fiscal Impact Measure, which measures the effect that government is directly having on overall gross domestic product, government investment has been directly supporting overall economic growth for most of the last two years. That means that, just last quarter, the government was contributing the most to GDP than at any other point since the end of the Great Recession. President Trump’s budget would reverse that, withdrawing critical support at a time when growth has already slowed.
The cuts are so deep, so massive and so poorly targeted that they could be large enough to even push us to the brink of a recession. Recall that, right now, overall economic activity grew by only 2.1% over the last year. Well, Trump’s budget includes roughly $958 billion in total cuts in the first four years. That amounts to about 1% shaved off of total gross domestic product right there. And some of these cuts would produce outsized effects that drag down growth. Some public spending is especially good at bouncing all around in local economies, supporting local businesses and generating additional dollars for everyone.
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Programs like Medicaid, food stamps, and tax credits for low-income families tend to permeate throughout local economies most effectively, and those are exactly the resources that President Trump’s budget envisions cutting, to the tune of about $335 billion in the next four years. These cuts could reduce overall economic activity by another .3% to .4%. Put it all together, and Trump’s plan would slash the overall economic growth rate down to well under 1% over the next few years, putting us right on the edge of outright economic contraction.
But in some ways, it’s the long-term economic damage that President Trump’s budget will cause that should concern us the most. Over the medium and long term, the key to economic prosperity is improving the prospects of everyday people. Workers and consumers are what drive growth and prosperity. When workers have the support and investment they need to do their best work, they innovate, create and do more with less time and fewer resources. When consumers have money in their pockets, they drive demand for goods and services and induce businesses to invest in the future. They all need public support and strong foundations to ensure that private concentrations of wealth and power don’t distort the economy to the advantage of the ultra-wealthy, and to broaden the economic base by bringing more people into full participation.
Trump’s budget slashes at those very foundations: education, health care, research and development. The result would be both a less productive workforce and less consumer demand, producing a weaker economy overall, with the already-rich capturing most of the gains.
Making matters worse, Trump’s budget would worsen economic disparities by race. He proposes cuts to nutrition assistance when black families are more than twice as likely to be food-insecure than white families. He proposes cuts to after-school programs, to student aid and to federal funding for homeless students, all of which will fall disproportionately on young black people. Black Americans already face systemic barriers to economic advancement, barriers that both diminish individual opportunity and hurt our economy overall.
Finally, Donald Trump’s budget would drive overall inequality even higher than it is now, exacerbating the negative economic effects that stem from concentrated income and wealth. His budget includes an extension of his signature tax cuts, which disproportionately benefited the rich. If extended, the richest 0.1% of Americans would get an additional tax cut of approximately $100,000 a year. This, paired with draconian cuts to public services that provide assistance to struggling families, would result in a significant increase in inequality. That’s appalling from a moral standpoint, of course, but it’s also bad economics. Extreme inequality is a drag on the overall economy in numerous ways. It distorts and narrows consumer demand, undermines the foundations for worker productivity and impedes strategic investment. And at a very basic level, higher inequality is associated with slower overall growth and deeper recessions.
Given the various ways that the policies within President Trump’s plan would damage the economy and hurt everyday people, there is a deep irony that the budget also assumes economic growth rates of 3% for the next five years that are well above what any other independent forecaster (such as the Congressional Budget Office’s 1.5% to 1.9%) assumes. In all likelihood, Trump’s budget would yield just the opposite: a much worse economy.
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