Part of an occasional series.
The promise: Candidate Trump promises the national debt will disappear rapidly under a President Trump’s leadership.
[Caption: Trump Tells O’Reilly Tackling $21T Nat’l Debt Will Be ‘Easy’]
An annual deficit (it can be monthly, or generally any time period) is simply outgo – incoming over the given time period.
The debt, on the other hand, is the cumulative deficits plus any interest incurred by financing (borrowing) against that debt. If the debt ever becomes negative (that is, a surplus) then one may also subtract any interest earned on that surplus.
Results So Far: This chart from the St. Louis Fed tells the story, with larger deficits towards the bottom of the graph:
I was unable to determine if these are raw dollars or are adjusted for inflation or any other relevant factor, which would explain why the numbers of the last thirty years are much greater in magnitude than previous years. But this caveat is immaterial for our purposes: the size of the annual deficits has been increasing dramatically under President Trump’s leadership, the direct opposite of his promise. For those who wish to point at Democratic President Obama’s first two years, when Congress was controlled by the Democrats, a second glance at the chart should remind them that this was the response to the Great Recession, initiated (through Quantitative Easing) by President Bush’s Administration; President Trump has had no such economic challenge against which to struggle. Indeed, our economy at the time of his election was chugging along nicely.
It must be remembered that President Trump is only, as of this writing, roughly 2.5 years into his four year term, and perhaps he’ll find a way to reduce the Federal Deficit before the end of this four year term, or a hypothetical second term.
The Bigger Picture: It cannot be emphasized enough: Congress has the power of the purse. That said, Republican President Trump had a Republican-controlled Congress for the first two years of his Administration, and during that time the much-ballyhooed Tax Cuts and Jobs Act of 2017 was introduced into and passed by Congress, and signed by President Trump.
President Trump, along with the Republican members of Congress, were enthusiastic supporters of the bill, proclaiming that the economy would expand at a greater rate than before, and that the Laffer Curve would help reduce deficits; critics, which included most Democrats, liberal pundits, and independent economists, rejected such claims.
The results? The chart above suggests the enacted tax cuts decreased government revenues substantially, as the critics suggested they would. Long-time readers and those who followed the Laffer Curve link, above, know that I do not believe the Laffer Curve has universal application, but instead only in very limited circumstances. The example of the failure of the Tax Cuts bill and, earlier, the smoking debacle of Kansas, where it was also confidently deployed under the leadership of former Governor Brownback (R-KA), confirms that conclusion.
Democratic control of the House, gained in 2019, may seem to be a good point to raise for conservative-minded readers who wish to suggest that an agreeable Congress would lead to smaller deficits, but I do not agree. First, general Republican economic policy has become deregulate, lower taxes, and all will be well. There is little empirical evidence in favor of this policy, and much against it (see Kansas, above). Second, President Trump, perhaps because of the Democratic control of the House, has concentrated on casting the blame for a potentially slowing economy on his own Fed Chair, Jerome Powell, for not lowering the prime rate as far as he wishes.
Finally, I would be remiss if I didn’t mention my own observations on the Federal budget, and, consequently, deficits. While deficit hawks have often deployed the analogy of the family budget as an argument for balanced budgets, I do not find the argument convincing. A family has relatively few resources to meet its obligations, while governments may offer bonds and raise taxes, as well as provide services. The fact that the government has run deficits for years has not yet led to doom and disaster.
Economics is the dismal science, however. Would we be in a better place if our Federal Debt was smaller? Is the recent phenomenon of near-zero% prime rate a result of the huge deficits, as some have suggested? These are hard questions which do not yet have answers.
Updated 25 Oct 2019: WaPo is reporting on the 2019 Federal Deficit under President Trump’s leadership continues to grow:
The U.S. government’s budget deficit ballooned to nearly $1 trillion in 2019, the Treasury Department announced Friday, as the United States’ fiscal imbalance widened for a fourth consecutive year despite a sustained run of economic growth. The deficit grew $205 billion, or 26 percent, in the past year.
While President Trump did suggest he’d need all eight years to destroy the entire debt, this report does not give one hope that he’ll actually succeed in even reducing the Federal annual deficit, much less the Federal Debt, even if he wins reelection.
