Trump is trading short-term pain for long-term economic gain

Michael Busler
4 min readMar 9, 2019

It was recently announced that the federal government’s annual budget deficit is getting larger. In addition, the trade deficit is also growing. Does this mean that President Trump’s economic policies are not working?

In 2018, the annual budget deficit increased by more than 16 percent from 2017 to $779 billion. That means that the public debt, which is the accumulation of all deficits, increased to more than $22 trillion.

The Democrats quickly pounced on this news to criticize Trump for his failed economic policies, especially the tax cuts.

The Trump tax cut, however, did not add one dollar to the deficit. That’s because in fiscal year 2018, with the tax cut in effect, the Treasury collected slightly more revenue than in fiscal 2017.

The increase in the deficit was due to increased spending, mostly for the military. In fact the tax cut probably helped to keep the deficit down because it helped increase annual economic growth from 2 percent to about 3 percent.

The Congressional Budget Office (CBO) forecasts annual deficits will get even larger in the next few years. However, the CBO does not have a great record for forecasting deficits, so using its forecasts may yield inaccuracies.

The CBO does point out that reducing the deficit will be extremely difficult. That’s because more than 60 percent of government spending is for entitlements: Social Security, Medicare and Medicaid. Most politicians won’t even talk about cuts to those programs.

Add in defense spending and interest on the public debt, and that leaves less than $1 trillion for everything else. So cutting government spending will be difficult.

Raising tax rates in an attempt to reduce the deficit will also be difficult, and even if accomplished may not necessarily increase tax revenue. That’s because higher tax rates will likely slow economic growth, so there is less earned income to be taxed.

President Trump has already spent heavily on the military in his first two years, so perhaps some cutting can occur there. His plan is to try to hold spending constant and then allow the increased economic growth to increase tax revenue, which will reduce the deficit and…

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Michael Busler

Dr. Busler is an economist and a public policy analyst. He is a Professor of Finance at Stockton University. His op-ed columns appear in Townhall, Newsmax.