Republicans have labeled the rising national debt a dire threat to national security. Indeed, an ever-increasing federal debt constrains future defense budgets and severely limits the government’s ability to respond to future conflicts or economic crises. Moreover, China is the single largest foreign holder of U.S. debt.
Ironically, however, virtually every one of the GOP voices now citing the national debt as a major national security threat voted for the 2017 tax cut, which is forecast to balloon the debt. Nearly two years following the passage of the tax law, its dramatic effects are coming into focus.
Normally, in a reasonably strong economy, the government collects more tax dollars year-over-year. In short, economic growth and a larger pool of taxpayers from the previous year generate higher tax receipts.
As a direct result of the GOP tax cut, however, 2018 was the first year that tax revenues actually declined in a relatively strong economy. When accounting for inflation, this unprecedented drop in revenues is even starker. But it gets worse. The actual decline in tax receipts was partially hidden by a surge in government revenues – amounting to the largest tax increase in decades – due to the Trump administration’s ongoing trade wars. To put all of this into perspective, the last time that the unemployment rate was as low as it is today, federal revenues increased by a whopping 22 percent over the previous year.
It should come as little surprise, then, that nonpartisan sources have forecast trillions of dollars in debt over the next decade due to the 2017 GOP tax cut. Despite the Republican mantra that “spending is the problem,” these forecasts account for modest spending scenarios.
All told, the 2017 GOP tax law is a fiscal disaster with clear implications for national security. Moreover, the tax cuts did not “pay for themselves,” as the Trump administration repeatedly promised. Spending, meanwhile, spiraled out of control, despite Republican control of the White House and both chambers of Congress.
A few years ago, the U.S. Treasury Department released a graphic illustrating the enormously costly long-term impact of the 2001 and 2003 Bush tax cuts, which primarily benefitted the wealthiest Americans. All readers would be wise to review the graphic, as it illustrates in vivid detail exactly how the Bush tax cuts – briefly extended by President Obama amid the worst economic crisis since the Great Depression – cost the U.S. Treasury well over $3 trillion in revenues to date. Moreover, much of the debt that Republicans frequently attribute to Obama is in fact the result of long-term compounding effects of the Bush tax cuts, as well as two expensive wars waged in the face of those enormous tax cuts.
Importantly, the data also show how well-timed tax increases, particularly on high-income earners, can lower the debt. If applying GOP logic, a declining debt correlates with enhanced national security.
President Clinton and a Democratic Congress, for example, raised taxes on high-income individuals in 1993. At the time, Republican lawmakers protested relentlessly that Clinton’s modest tax increase on the wealthy would send the economy into a tailspin. GOP caterwauling was proven spectacularly wrong: federal deficits began to decline immediately and the economy roared to life.
Republicans also frequently – and misleadingly – claim that a 1997 tax cut led to the robust economic growth that underpinned the historic budget surpluses of the late 1990s. The reality, however, is that deficits declined dramatically (and the Clinton administration was on its way to budget surpluses) well before the GOP’s 1995 takeover of Congress. Similarly, quarterly economic growth reached a red-hot 6.8 percent a full year before the 1997 tax cut took effect.
None of this is to say that increasing taxes on the wealthy caused the strong economic growth of the 1990s. But it firmly puts to bed the GOP mantra that tax increases on the wealthy stifle economic productivity. Conversely, there is scant evidence that tax cuts for the wealthiest Americans result in economic growth.
Indeed, amid 70-90 percent marginal tax rates on top earners in the decades following World War II, the economy roared to life, a robust American middle class was the envy of the world and national debt remained low. Then, the massive Reagan tax cuts for the wealthiest Americans, in conjunction with profligate defense spending, caused the national debt to skyrocket, nearly tripling under Reagan’s watch.
The legacy of GOP tax cuts – and the 2017 law in particular – is clear: enormous increases in federal debt, with striking implications for national security. Considering that the 2017 tax cut had virtually no effect on economic growth and is causing a dramatic increase in wealth and income inequality – both worse today than just prior to the Great Depression – American taxpayers must ask themselves what, if any, benefits future GOP tax proposals may deliver.
Taxpayers would also be wise to remember that a slight increase in taxes on the wealthiest citizens, in conjunction with a strong economy and modest spending cuts, placed the United States on track to eliminate the entire federal debt.
Marik von Rennenkampff served as an analyst with the U.S. Department of State as well as an Obama administration appointee at the U.S. Department of Defense.