President Donald J. Trump... "America’s Best Last Hope to Avoid Bankruptcy"
President Donald J. Trump......
"America’s Best Last Hope to Avoid Bankruptcy"
These United States are heading for bankruptcy. How long it will take to achieve this goal will depend on the size of the yearly deficits and how fast and how high interest rates rise. I use the word goal because it’s as if both Republicans and Democrats are actually trying to bankrupt the country.
There were three rate hikes in 2017 totalling .75%. The Federal Reserve is projecting three more in 2018. If all three come to pass the increase will be at least another .75%. The exact amount of the projected increase will depend on how fast the economy grows, how many jobs are created and also the quality of the jobs created. Ten dollar an hour jobs are one thing, but high paying construction jobs, manufacturing jobs and technical jobs are quite another. These types of jobs, in most cases, in addition to being high paying also come with benefits. They also have the added bonus of providing the government with more tax revenue.
To the best of my knowledge, there are only a few ways for the government to obtain funds. We are all familiar with the first one. The government has the authority to levy taxes. The most common examples of federal taxes are individual and corporate income taxes. We all know about social security and medicare taxes. In addition, there are also capital gains taxes and taxes on alcohol, tobacco and gasoline. One other example of a federal tax, was the Obamacare individual mandate which was judged to be a tax by the Supreme Court. The government also has the authority to charge fees. The most common of these are fees to enter our national parks or to obtain a passport.
The government can also assess fines on individuals and companies for breaking the law or violating a regulation. The best examples of this, in the last few years, are banks like Wells Fargo and UBS, who were fined billions for violating banking regulations.
The last source available to the government to obtain funds is borrowing. Most of the time the government sells bonds and treasury bills on the open market for a fixed rate of interest for a specified period of time. The unfortunate reality is that these loans will never be paid back. When they become due, the government will issue new debt to pay off the old debt.
Another method of borrowing which the government can choose to utilize, which in my view borders on the ridiculous, takes place when the Federal Reserve prints money and loans it to the federal government. Basically, this is our government borrowing money from itself. These last two methods of obtaining funds are why we are now $20T in debt.
This unrestrained borrowing is putting the economic stability of the country at risk. It is also becoming the single largest national security risk, with the exception of North Korea, that our country will have to confront in the not too distant future. I say this because the debt and the interest on the debt are both increasing. It is the responsibility of our elected officials to get this problem under control. If they are unwilling or unable to find a solution to this problem, the national debt will continue to increase at an increasing rate.
What really bothers me the most about this interest expense is that we get nothing tangible for our money. We are spending hundreds of billions of dollars per year and we get no new roads or bridges. We also do not get modernized airports. Nor do we get new hospitals or new schools, especially in the inner cities, where they are needed most. All we get for our money is the ability to use these borrowed funds for one year. The sad reality of borrowing these funds is that we only get to spend this money once, but we have to pay interest on the debt every year. This interest will probably be paid in perpetuity.
Before I continue, I want to do a quick recap. First, the national debt currently stands at $20.5T and is rising. Second, the interest rate on that debt is 1.27% for fiscal year 2017 and is also rising. Interest expense was $240B in fiscal year 2016 and is projected to climb to $325B in fiscal year 2018 according to the federal budgets for those years. That is an increase of roughly 35% in only two years. Lastly, there are only three ways, other than monetizing the debt, that are available to us to fix this problem. The government must either cut spending or lower the growth of spending, increase government revenue by increasing economic growth, or do both.
During President Obama’s time in office the economy grew at the very low rate of 1.5% to 2%. When economic growth is this low, the economy does not generate enough revenue for the government to pay for the spending authorized by Congress. The problem is that yearly deficits during this period were so great that the government had to borrow $10T.
We have now reached the crux of the problem. After the great recession of 2008, the economy slowed down and government revenue decreased significantly. President Obama’s remedy was to spend money like a sailor. The problem was, in addition to spending money we didn’t have, it wasn’t spent in a way that really helped the economy come back. Here again, we didn’t do infrastructure or work programs, just government giveaways.
In my youth, I was a proud member of the United States Navy for four years. As such, I acquired a vast amount of experience with regard to spending money like a sailor. For example, there were times when we would be at sea for forty or fifty days at a stretch. When we finally pulled back into port, we all had money. So we went out, painted the town red, and spent like sailors. Eventually, we had spent all of our money and had to return to our ship absolutely broke. President Obama, on the other hand, was under no such constraints. Congress simply raised the debt limit and the president continued spending. By the way, not only did the Republicans not impede him, some of them actually voted to raise the debt ceiling.
As I stated above, the taxpayers got little or nothing for their money. The President could have gotten bi-partisan support on an infrastructure bill which would have created tens of thousands of new high paying jobs. What he did instead was raise taxes on the job creators and impose mountains of regulations on the business community. For those of you who are not aware of this, regulations cost the business community billions of dollars every year. This makes them less profitable and less inclined to invest in their business and expand. In other words, these type of policies cost jobs.
Between the increase in taxes, some of which were part of Obamacare, and the increased burden caused by all the new regulations, some owners and /or CEO’s of national corporations came to the conclusion that their businesses would be better off, meaning profitable, if they were located elsewhere. Elsewhere is located outside of the United States. So a good many of them left the country and took those high paying jobs with them. Can you imagine how bad the business environment had to have been for these business owners and/or CEO’S to pack up their businesses and leave the country. I’m assuming that most, if not all of these business leaders were hardworking patriotic Americans. The thought that the government of the US would purposely create an environment that literally drove business out of the country absolutely stuns me.
Raising taxes during a recession is not good economic policy. This is why the economy grew at an annual rate of only 1.5% to 2.0% during the eight years of the Obama administration. Most people are aware of the news stories about manufacturing plants closing in the US. Some people thought that narrative was made up by conservatives. This is totally false. According to the Bureau of Labor Statistics there were 300,000 less manufacturing jobs when President Obama left office than when he began his term.
One other reason for the slow growth was that wages remained virtually stagnate. Wages are just now beginning to creep up.The reason is that the unemployment rate is now at a 17 year low. Employers are being forced to compete for the best people. Competing for employees means offering better pay and better benefits and incentives.
We now have President Donald J Trump entering the scene. This president is trying to improve economic growth by lowering corporate tax rates on both large corporations, (C-Corps) and smaller corporations (S-Corps and LLCs), also known as “pass through corporations.” It is his hope that lowering the corporate tax rate, along with less regulation, will act as an enticement to business owners (aka job creators) to expand their businesses and eventually hire more people. He is also hoping that some of the businesses that left the country and took all those high paying jobs with them, will find it advantageous to return to the US. Remember all those union people in the midwest who, instead of voting democratic during the last presidential election, voted for Trump. This is why they voted the way they did. They want those jobs to return to the US. Bringing business and jobs back to the US will increase economic growth which will result in increased government revenue. Remember, increasing government revenue is one way to lower yearly deficits.
In addition to motivating businesses to locate or relocate back into the US, there is approximately $4T in corporate profits sitting offshore because the tax rate to bring that money back into the US was too high. The top corporate tax rate was 35%. The new top rate will be 21% starting in 2018. Here again, the hope is that this new lower tax rate will be incentive enough for these companies to repatriate these funds back into the US and invest them here in new facilities and new employees.
The president’s new tax plan also lowers taxes on most individuals and families in the country. It achieves this by doubling the standard deduction and also doubling child care tax credit. The new plan also lowers tax rates. Unfortunately, there are some taxpayers who itemize deductions on their federal tax return, mostly from high tax states like New York, New Jersey and the People’s Republic of California, who will not be able to deduct state and local taxes (SALT). They will however, still benefit from the lower tax rates and the increased child care tax credit.
As we all know, the democrats are against the president’s tax reform plan. It’s not that they’re against tax cuts. They’re just against tax cuts for hard working upper income taxpayers. These greedy rich people (aka job creators) shouldn’t be paying less in taxes. In the words of Chuck Schumer, “It’s a disgrace.” How could this possibly be fair? It’s fair Chuck because hard working people in upper income tax brackets pay most of the income tax. According to the statistics that I’ve heard and seen, the top 40% of the taxpayers pay 71% of the income tax. What this means, for those of you who are mathematically challenged, is regardless of what Senator Schumer and Congresswoman Pelosi think, higher income taxpayers deserve a tax cut too. Furthermore, since they pay more in, they should get more out. Unless you’re a socialist, this is fair.
The real reason why people like Senators Schumer and Sanders and Congresswoman Pelosi are against the president’s tax reform plan is that they’re socialists. They’re not really interested in tax cuts for everyone. Their real objective is to transfer wealth from hardworking people in one economic class to hardworking people in another economic class. This is socialism. This is the economic plan of the democratic party. This type of economic strategy for the US would result in bankruptcy. And it would happen a lot quicker than it otherwise would have. This is the current economic reality in countries like Cuba and Venezuela who are on the very edge of going bankrupt. Other countries like Portugal, Spain, Greece and Italy are getting closer every year.
Our country is now at an economic crossroad. The economy has begun to show signs of improvement in the second and third quarter of 2017. All indicators point to a comparatively strong fourth quarter. Higher economic growth means increased government revenue. In my opinion, that by itself will not be enough to solve the problem of deficit spending. In addition to increasing government revenue, we also need to lower government spending. Lowering spending does not have to mean cutting spending. Decreasing spending can also be accomplished by lowering the growth rate of spending. For example, instead of increasing the annual budget for the energy department by 2.5%, increase it by only 1.5%.
The issues of yearly deficits and ultimately our national debt need to be addressed. When Mitt Romney ran for president he brought up the subject of the 45% of the population who were receiving payments, of one type or another, from the government. If this issue is not dealt with and solved in the not to distant future, the people who are the 45% will be put in financial jeopardy. These are the people that the democratic party says that they are fighting for. Really?
In my view, it is one of the main responsibilities or duties of government to create an environment in the country where business can thrive and grow. If this happens, everybody wins. Jobs are created, people work and support their families and the government gets tax revenue. Everybody wins. As JFK once said “A rising tide lifts all boats.” Unfortunately, the Democratic Party of John Kennedy no longer exists. The Democratic Party of today is the Socialist party of Bernie Sanders. Take a good hard look at the socialist countries that I listed above. Is that really what you want this country to become. I would think long and hard about that, because once we become that kind of country, it will be very hard, if not impossible to go back. Just look at the Islamic Republic of Iran. Tens of thousands of their citizens, if not more, are in the streets protesting their socialist government. This oppressive government controls most of the countries resources. There are very few jobs, little opportunity, no money, and not a lot of food in the stores. Also, there is no hope. The government is extremely harsh and unforgiving. The reason this kind of government exists in Iran is because it was what the people of Iran wanted forty years ago. I’d bet the farm that most of the Iranian people regret their choice. All you millennials out there, who think Bernie Sanders and socialism are so great, just might want to reconsider. All that free stuff that he offered everybody, isn’t really free. Somebody has to pay for it.
The Democratic Party of today looks at the business community the way vampires look at the necks of their victims.Their only interest is how much money will they be able to bleed from the private sector to fund their socialist agenda. They view the business community as the enemy. During the recession, the democratic party did nothing to help the business community rebound from the recession and grow. Instead of creating an environment that would have helped business, what they did was raise taxes and added on piles of regulation. This is why the country grew at less than 2% a year for eight years.
President Trump, on the other hand, is doing just the opposite and his policies are beginning to work. Much of the improvement in the economy is based solely on the fact that he is the president. His new tax reform plan has barely had time to work. So any improvements that have happened in the last twelve months have happened just because he became president. The one thing that I can point to that did have a major effect on the economy was all the deregulation, which by the way, is not finished. Depending on how successful his policies are will determine whether or not yearly deficits decrease.
This is just an afterthought, but there is a silver lining to all of this. It is simply that Hillary lost and Donald Trump won. Donald Trump is trying to decrease yearly deficits and just maybe stop the bleeding. He’s not a typical politician and he sometimes rubs people the wrong way. Everybody has their own style. But the fact remains that he gets things done. He’s a really good negotiator. For example, he knows he can’t get everything he wants and he won’t give the other party everything they want. Compromise will happen. My thinking is that if Hillary would have been elected, we would have had more of the same with a side order of corruption. Higher taxes, higher deficits and slower economic growth would have continued. For the good of this country, I hope the president’s economic plan succeeds.