Trump's base can't handle the truth: He's wrecking their economy

In the first four months of FY19, the deficit grew to $310 billion, up from $176 billion in FY18. To rein it in, the Trump administration and Congressional Republicans have targeted cutting entitlements that many Trump supporters depend on. Yet they remain steadfast. When will they ever learn?

America is now governed by the least educated, least informed and most gullible 34 percent of the electorate — Donald TrumpDonald John TrumpTrump calls for Republicans to be 'united' on abortion Tlaib calls on Amash to join impeachment resolution Facebook temporarily suspended conservative commentator Candace Owens MORE’s base. Their most common delusion is that Trump is responsible for our strong economy.

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Yes, we’re experiencing near-record low unemployment and rising wages. But that’s from the momentum of a recovery that started ten years ago, when President George W. Bush convinced an unwilling Congress to pass a $700 billion bank bailout, saving us from another depression. Since then, the U.S. has enjoyed 100 straight months of increased employment.

Trump can’t take credit for that. Nor is this economy the record-breaking, greatest-ever phenomenon Trump and his supporters like to claim.

It’s true that workers’ pay grew 2.9 percent last year — the fastest since the Great Recession. But before that, wages after inflation rose far slower during Trump’s presidency than Obama’s. Obama averaged real wage increases of 0.8 percent, compared to Trump’s average of 0.3 percent.

Trump boasts about GDP growth being the highest ever. But Obama generated four years of higher GDP growth than Trump has in any year of his presidency.

Trump claims he’s produced record-breaking job growth. In fact, more jobs were added during Obama's final 18 months (206,000 per month) than during Trump's first 18 months in office (193,000 jobs per month). U.S. job growth peaked in 2010.

The GDP growth that delights Trump supporters is likely to be short-lived. Trump’s tax cuts failed to launch the promised investment boom that was supposed to lead to long-term growth. In fact, growth may already be slowing. Initial jobless claims, a proxy for layoffs, recently rose by 8,000. A growing number of economists and 73 percent of money managers predict a recession later this year or next.

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Trump’s tax cuts pose significant risk to the economy, which seems to have escaped the notice of his base. The cuts ballooned the deficit, because they reduced government revenues without generating enough growth to compensate. In FY18, corporate tax receipts shrank by $92 billion, while the deficit grew by $113 billion. And it’s getting worse. Just in the first four months of FY19, the deficit grew another $124 billion.

Although Obama and Bush added more to the deficit than Trump, they had to spend billions to recover from the Great Recession. Trump on the other hand took office when the economy, wage and job growth were strong, yet he cut taxes and blew up the deficit and debt anyway.

Historically, low unemployment and GDP growth meant more people paid more taxes and deficits shrunk. But because of Trump’s tax cuts, that’s not happening now. Other than during wartime, this decoupling of the deficit from the business cycle has never happened before.

Debt has soared under Trump, and the U.S. debt-to-GDP ratio has grown to 105 percent, the highest since 1950. Rising debt-to-GDP ratios often signal a recession. Every percentage point of debt above 77 percent reduces economic growth by 1.7 percent, which means we’re losing over half of our potential GDP growth to debt.

Trump’s tax cuts will also widen the income and wealth gaps between Trump’s cheerleaders and the very rich. According to bond ratings firm Moody’s, it will likely put pressure on the U.S.’s fiscal strength and weigh on its credit profile.

The threat of a credit downgrade is implicit in Moody’s narrative. A lower rating will lead not only to higher Treasury rates but also to higher rates on residential mortgages and consumer spending (which is two thirds of our economy).

John F. Kennedy said, “The time to repair the roof is when the sun is shining.”  It was pouring rain when George W. Bush and Obama were president. But Trump took office when the sun was out. He should have fixed the roof, but chose instead to blow a bigger hole in it.

Congressional Republicans need Trump’s base to win elections, so they are very reluctant to oppose his policies no matter how damaging they may be.

That leaves truth-telling up to the Democrats. They must pound away at the facts until they convince enough Trump supporters of the true impact of his policies and weaken Trump’s political leverage over Republicans in Congress. Only then will they be able to vote their conscience.

Neil Baron advised the SEC and congressional staff on rating agency reform. He represented Standard & Poor’s from 1968 to 1989, was Vice Chairman and General Counsel of Fitch Ratings from 1989 to 1998. He also served on the board of Assured Guaranty for a decade.