WASHINGTON, March 14, 2017 — Congress is at war with itself. The House is struggling to find an acceptable plan to replace the failing Affordable Care Act (Obamacare). Congress is preparing for new fights over immigration and refugees. And soon, President Trump will reveal his 2018 budget.
Trump’s major budgetary goals include a reduction in government spending, tax cuts for all Americans, and a balanced budget. Each goal on its own would be a major achievement; reaching all three will be almost impossible. Democrats, far-right Republicans and moderate Republicans all have different priorities and will probably refuse to budge.
Trump’s top priority is probably the reduction of federal spending, followed closely by income tax reduction. Trump’s ideas to cut spending will be welcomed by most members of his party, but not by Democrats. They will claim Trump wants to remove the safety net for the lowest-income earners and will shirk government’s responsibilities to protect the poor and weak.
Trump might retort that the Federal government is extravagantly wasteful and employs too many people. He will prioritize the military and homeland security while significantly cutting government spending for things like public housing, foreign aid, environmental programs, research grants, Planned Parenthood and public broadcasting.
If he follows through, he will cut government employment. That, Democrats might argue, will cause unemployment to rise, personal income to fall and perhaps lead to declining housing prices. That assumes that the laid-off government workers will not be able to find jobs in the private sector. A new, higher-growth economy will provide opportunities for those workers, so the layoffs could have little impact on unemployment, personal income and housing prices.
Trump plans to cut individual and corporate tax rates across the board. If he is successful, this will stimulate demand by middle-class consumers and boost supply from businesses, which will now have more investment capital to meet the greater demand. The result will be economic growth, perhaps as much as 4 percent annually, while inflation is kept at a low level.
Democrats will claim that Trump’s proposals are just another tax cut for the wealthy and will effectively transfer income from the middle class to the upper class. That’s really a bunch of poppycock.
If you cut taxes for all Americans by 10 percent, those paying $30,000 per year in taxes will get a $3,000 cut while those paying $2,000 per year in taxes will receive only a $200 cut. The Democrats will emphasize that the wealthy are seeing a $3,000 tax cut while the lower middle class is only getting $200. “See,” Dems will argue, “another tax cut for Trump’s wealthy friends.”
Balancing the budget will be impossible, but reducing the size of the Federal deficit is not. Trump should be able to cut government spending, not just cut the rate of growth in spending, which is the way Congress has been framing the argument for years.
Congress has routinely declared that since they planned to increase spending by 4 percent next year but will raise it by only 2 percent, they have cut government spending. Trump will cut spending by applying sound business principles to budgeting, something Congress has never done.
While the battle for the budget is being fought, Congress will have to deal with the public debt ceiling. The public debt (the accumulation of all annual deficits) is routinely capped by Congress. Since the federal government will reach the current ceiling in about 30 days, Congress must agree to raise the ceiling so the Federal government can borrow more money. With a conservative Republican base and Democrats who simply oppose Trump no matter what he does, finding compromise here will be very difficult.
Coming into office, President Trump knew that passing a budget that achieves his ambitious goals would be difficult. Although Trump is a negotiator who knows how to reach compromise and make deal, his skills are about to be severely tested.
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