The Corner

Economy & Business

Neither Candidate Is Serious about Our Fiscal Trajectory

Like millions of other people, I watched the debate last night. But I have to say, as someone who moved to the United States because I believed this country was the land of freedom and has done a better job than others to constrain the growth of government, part of my dream died last night. Leaving aside the misleading claims and the trash-talk topics, it was depressing to see that there was no candidate on that stage in favor of shrinking the size and scope of government, of freeing people from government paternalism, or willing to kick the government out of our personal lives.

For example, Hillary Clinton made a passionate defense of Roe v. Wade by saying there is “a constitutional right [for] a woman to make the most intimate, most difficult, in many cases, decisions about her health care that one can imagine.” And yet she believes that the government should be heavily involved in what kind of health-care plans we buy. We also know from previous debates that she believes the government should also be involved in deciding how our children should be educated and where they go to school, how we decide to run our businesses, and pretty much any other aspects of our lives, including what we are allowed to smoke or eat. Come to think of it, it seems that the only issue on which women have a right to choose without interference from the government is whether or not to terminate a pregnancy and, in very recent years, whom to marry.

On the issue of the size of government, the debt, and deficits, I again found that neither candidate is serious — and a few claims made last night were actually quite laughable.

Take Clinton. She claimed that her high-taxes, high-spending plan would not add a penny to the national debt. But nothing could be further from the truth. Public debt stands at 77 percent of GDP (gross debt is over a 100 percent). Her plan would increase the national debt by $9 trillion, from $14 trillion today to more than $23 trillion in a decade (or 86 percent of GDP) according to an analysis by the Committee for a Responsible Federal Budget. And that doesn’t even take under consideration her new and expansive child-tax credit.

Now, maybe she was trying to be clever by arguing that her plan wouldn’t increase the debt more than the current projections by the Congressional Budget Office (CBO). As I mentioned yesterday, CBO projects an increase from 77 percent of debt to GDP today to 86 percent in 2026. However, if she wants to brag about maintaining the status quo, she is fiscally irresponsible at best. Without even taking under consideration that CBO projections are likely too optimistic, CBO also projects that our debt will grow to reach 150 percent of GDP in 30 years. And that number doesn’t include unfunded liabilities, which — depending on the scholars and the methodology — may range from $55 billion to $200 trillion. Ouch. Even without going that far, most economists on the right and the left agree that persistently high and increasing levels of national debt correlate with diminished economic growth. Not to mention that it is really crappy to leave future generations to deal with that mess.

So Clinton’s plan increases the debt a lot, and not surprisingly it also would “reduce GDP by 1 percent over the long-term due to slightly higher marginal tax rates on capital and labor,” according to the Tax Foundation. Under her plan, the ten-year GDP growth will be depressed by 2.6 percent, while capital investment will be depressed by 7 percent and wages will go down by 2.1 percent. No thank you.

Unfortunately for us, Donald Trump isn’t any more serious about addressing our debt problem. According to CRFB, his plan would boost the debt to 105 percent of GDP in ten years because revenue would fall quite dramatically. Don’t get me wrong, I don’t have anything against starving the beast, as long as we cut spending at the same time and do not leave future generations paying for it all.

Also, last night Trump failed to make the case for his business plan, which is by far the strongest part of his program and has real potential to trigger serious economic growth. As always, he talked about China and not making products in America. For the record, manufacturing jobs peeking in the 1980s and they have been in decline as a share of employment since the early 1940s. He also failed to talk about his plan to deregulate the economy, which would also have a positive impact on the economy.

Sadly, as great as Trump’s business and deregulation plans are, we can’t grow ourselves out of our fiscal mess — as Trump and many of his supporters claim. Would life under Trump’s economic plans be better than what we have now? If you ignore the negative effects that his immigration and trade plans would have on the economy, we would absolutely be better off. But these are big ifs. And even if the plan grows the economy significantly, it won’t be enough I am afraid. And to all of you who want to use the Reagan years as evidence that it will be enough, I will say that during the Reagan years we weren’t about to experience the coming explosion of spending on entitlements that we are facing now. We weren’t about to experience the biggest transfer of wealth from the relatively young and poor to the relatively old and rich because of that spending. We weren’t already at 77 percent of debt to GDP and on our way to 100 percent. This is not an indictment of the wonderful effect of growth brought on by fundamental tax reform, it is just a statement about how the challenge is much larger today than it was back in the 80s.

Unfortunately, neither candidate would reform entitlement spending. Here is Chris Wallace’s — who was great last night — question:

All right. The one last area I want to get into with you in this debate is the fact that the biggest driver of our debt is entitlements, which is 60 percent of all federal spending. Now, the Committee for federal — a Responsible Federal Budget has looked at both of your plans and they say neither of you has a serious plan that is going to solve the fact that Medicare’s going to run out of money in the 2020s, Social Security is going to run out of money in the 2030s, and at that time, recipients are going to take huge cuts in their benefits.

Trump went on to say, “I’m cutting taxes. We’re going to grow the economy. It’s going to grow at a record rate of growth,” and, “Repeal and replace the disaster known as Obamacare.” But as I have said, you can not grow your way our of our debt problem. Also, even though everything he says about Obamacare — the problem of premiums going up, and thereby hurting people and businesses — is correct, repealing Obamacare isn’t enough. Before Obamacare there was — and still is — Medicare. Remeber, we spent close to $600 billion on Medicare in 2016.

We know Trump doesn’t want to touch Medicare or Social Security. We spent almost $1 trillion on Social Security in 2016. The program has been running a cash-flow deficit since 2010. Its Trust Fund will dry up by 2034 and, when that happens, benefits will be cut by 25 percent. This is not good and doing nothing is not an option.

Of course, Clinton is no better on Social Security than Trump is. She want to put money in the Trust Fund by raising taxes on the rich, the same rich, I suppose who will be paying for her free-college-tuition plan. While that may extend the life of the program, it won’t fix anything. And on top of that she wants to increase benefits to low-income earners, without cutting anyone else’s benefits. Her math, as always, doesn’t add up.

Finally, as I have said before and will say again: Even if Social Security was solvent, it is an incredibly unfair program that redistributes money from young and poor Americans to old and rich ones. It redistributes money from minorities and blacks to white people and from single people to married people. I am surprised that Clinton is content with that.


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