National Debt Under Trump

US citizens are watching with growing concern about how quickly the national debt is rising. Trump’s national debt problem is a key economic issue that needs to be resolved for a sustainable and stable economy in the future.

Trump’s National Debt Strategy

Trump’s National Debt Legacy

One of the promises that Trump made before the presidential election was his plan for eliminating the national debt in 8 years.

However, given the current budgetary policies, Trump’s national debt may rise by a massive $8.3 trillion at the end of 8 years. At this rate, the national debt will keep climbing new highs. Especially under the current circumstances, bringing the national debt down to zero in such a short time span appears to be impossible. In fact, reducing the national debt by any minuscule amount appears to be a daunting task.

The Congressional Budget Office has further bad news in store. The Congressional Budget Office has projected a budget deficit of over $3 trillion in the fiscal year 2021 alone. Once the full scale of the coronavirus outbreaks is realized, the adverse financial impact may be even greater.

One key aspect of President Trump’s national debt policy is the lowering of taxes. Trump believes that by lowering taxes, businesses and employees will flourish. He expects this to increase tax revenue. In other words, Trump believes that the massive tax cuts that he has ordered will pay for themselves through greater economic activity. However, this does not appear to be working out in reality.

In fact, tax cuts may make Trump’s national debt problem even worse. Not only has Trump slashed taxes considerably, he has also approved much bigger public spending to spur economic activity. Lower taxes and greater public spending will only increase the budget deficit. The US government will have to borrow more to cover the widening deficit. This will increase the national debt and make it even worse.

Trump’s National Debt Strategy Was Based On A 6% Economic Growth Rate

Trump's national debt strategy was based on 6% economic growth
Editorial Credit: Sam 72

When he was the presidential candidate, Trump said that he will aim for a 6% economic growth rate. This growth, he supposed would provide increased tax revenue that could be used to reduce the national debt. However, there are problems with this plan. First, achieving such a fast growth rate is not a cakewalk by any means. Even if such a high growth rate is achieved, it creates the problem of inflation. Investment and spending rise dramatically. This is the perfect environment for boom-bust cycles where a recession is almost inevitable.

However, once he was elected president, he brought down the projected growth rate to a more conservative 2 to 3 percent. To achieve this stable growth rate, he enacted the Tax Cuts and Jobs Act that provides lenient tax terms for driving employment. Corporate taxes came down to 21% from 35% while the top bracket of individual tax payers now have to pay at a maximum rate of just 37%. Although personal exemptions were finished, the standard deduction was doubled.

Skeptical economists believe that this plan won’t work, although it is ambitious. The last time that such a plan worked was during the Reagan era. But during that time the highest individual tax rate stood at 70%. Since the highest bracket tax rate was so high, cutting taxes boosted economic activity which in turn reinforced tax revenues. But since the highest tax bracket (that came down during the Trump era) is not as high, it is unlikely that tax cuts will pay for themselves as Trump thinks.

Reducing Waste for Controlling National Debt

Another key component of Trump’s national debt strategy for bringing the national debt under control is to reduce waste in spending. Increased government expenditure is the primary reason for a growing budget deficit. When the budget deficit grows, the government needs to borrow more. This increases the national debt. So one way of reducing the national debt is to bring down the deficit and that can be done through reduced spending.

Although Trump hopes to reduce wasteful spending, doing so will not be easy. The main reason for this is that around two thirds of government spending is mandated under by various Acts of Congress. In other words, two thirds of government spending is done under the law. Trump does not have the authority to reduce this spending under his discretion because that would violate the law.

Under these laws, social security benefits cost about $1 trillion per annum. Medicaid is around $450 billion while Medicare stands at $722 billion. The annual interest incurred on the national debt is now over $375 billion. The government has to spend $3.3 trillion per annum to cover these as well as other mandatory costs. One of these costs is the military budget.

To reduce Trump’s national debt, lowering the military budget is imperative. However, this is unlikely to happen under Trump. Instead, Trump has increased the military budget to an unprecedented $934 billion. It is hard to reduce the national debt when the military budget alone is touching almost a trillion dollars.

Sadly, cutting waste alone will not cut it. Trump will have to reduce military spending as well as public spending on other mandatory programs as required under the law. To do this, he will have to pass bills through Congress that will empower him to make cuts in public spending. Unless there is a reduction in public spending and the military budget, bringing down the national debt will be nothing more than a dream.

Trump Believes He Can Just Keep Printing Money

Trump’s national debt defense it to print unlimited fiat currency and that will protect against default. In other words, he thinks that he can simply print more money to pay off the skyrocketing interest on debts and the principal debt amount itself. This can have serious consequences. The US dollar will lose its value greatly if there are too many dollars in circulation. This will then reduce the worth of US treasury bills and make the interest less attractive to investors. When there is less demand for treasury bills, the US government will be unable to obtain funding to cover its budget deficit. The economy can potentially collapse.

Thus, Trump’s national debt problem must be addressed forthwith to avoid its damaging consequences on future generations.

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