Biden is dead wrong about the Trump tax cuts, spending and debt
While pushing his budget-busting economic agenda, President Biden tried to claim the mantle of fiscal responsibility, stating, “This isn’t going to be anything like my predecessor, whose unpaid tax cuts and other spending added nearly $8 trillion in his four years to the national debt — $8 trillion.”
First, let’s get the facts straight: In just eight years, the Obama-Biden administration oversaw federal debt outstanding increase from $10.7 trillion (73.2 percent of GDP) to nearly $20 trillion (105.3 percent of GDP), a pace of more than 4 percent of GDP per year in annual deficits. Their debt increase was nearly equivalent to all the federal debt accumulated over the entire history of our country that preceded their administration.
Three years into Donald Trump’s administration, just prior to the onset of the pandemic, the national debt stood at $23.2 trillion, equivalent to 106.9 percent of GDP. Because of the stronger economic growth America was then realizing, debt as a percentage of GDP was increasing at just 0.5 percent per year.
During 2020, federal debt rose $4.5 trillion. The bulk of this deficit came from the significant federal assistance provided to support the economy during the pandemic-related recession, the deepest economic shock to our country in nearly a century. Would Biden have spent less?
According to a recent report by the National Bureau of Economic Research, the pandemic recession also ended up being the shortest recession on record because of the swift implementation of the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act, led by the Treasury Department. It’s odd to hear Biden criticize deficit spending under the Trump administration, which supported our economy during a quarter when GDP fell a precipitous 31.2 percent on an annualized basis.
Where was Biden’s concern for debt in March when the Democrats in Congress passed, on an entirely partisan basis, the $1.9 trillion American Rescue Plan Act? That program, which is contributing to slower employment growth and higher inflation, was entirely debt-financed and passed 10 months after the recession officially had ended.
Where is that same concern for debt as Biden’s socialist partner, Sen. Bernie Sanders (I-Vt.), chair of the Senate Budget Committee, writes a budget that increases federal spending by $3.5 trillion over the next 10 years — paid for almost entirely with accounting gimmicks?
Instead, Biden’s recent remark was yet another dishonest swipe at the notion that tax cuts create economic growth. He must repeat it to support the left’s extremist agenda of greater central planning, massive tax increases, radical wealth redistribution, and ever-expanding government dependency.
By comparison, the Trump administration’s policy was built on economic freedom — getting the government out of the way, unleashing the private sector, and investing in American ingenuity — to the benefit of all Americans.
History shows that lowering marginal rates and creating investment incentives cause growth that results in increased tax receipts. A lower rate on a much larger base of activity can generate more revenue than high rates on less activity. Prior to the pandemic, America was starting to see such results from the Tax Cuts and Jobs Act (TCJA) of 2017.
In the five months of fiscal 2020 just prior to the pandemic shutdowns, corporate tax receipts rose to $73.9 billion from $59.2 billion in the equivalent five months of fiscal 2019, a 24.8 percent increase. Likewise, individual income tax receipts were up 7.1 percent.
Many jobs had returned to American shores and workers had re-entered the labor market. The unemployment rate reached a 50-year low and more than a half-million manufacturing jobs were created. These actions helped to generate the longest economic expansion on record, one that came to a halt only because of the pandemic. With more Americans working and more companies paying taxes in the United States, individual and corporate tax receipts were growing at a pace well above inflation. The TCJA was generating higher revenue than static models estimating its fiscal impact had forecast.
The positive social impact of this was astonishing. With more Americans working, the poverty level in 2019 for Black and Hispanic Americans fell to their lowest rates on record at the time. Reductions in poverty translated into fewer Americans dependent on food stamps, unemployment assistance, and other social safety net programs that increase federal outlays.
Contrast that with the Biden administration’s own forecasts of the economic impact of its budget. Once the economic consequences of the pandemic are behind us, they forecast that full implementation of their budget will lead to real GDP growth of just 1.8 percent to 2 percent per year. They ignore that a growing economy generates the type of shared prosperity and record-low poverty levels that Americans enjoyed during the Trump years.
The choice facing the American people is clear: Biden’s greater dependency on government accompanied by slow growth, tax hikes and inflation that causes declines in real wages and passes along massive debt to our children, or greater self-reliance with economic liberty causing stronger economic growth and real income gains for all Americans, which we experienced under Trump.
Biden and the Democrats for decades have claimed to champion working families, but their policies — government expansion that centralizes even more of our economy, raises taxes, buries us deeper in debt, and strips away economic freedom — will hurt hard-working Americans most of all.
The fact that Biden nevertheless advocates socialism under a banner of fiscal responsibility takes dishonest cynicism to a whole new level.
Michael Faulkender served as assistant secretary of the Treasury for economic policy from 2019 to 2021 and currently is professor of finance at the University of Maryland.
Monica Crowley served as assistant secretary of the Treasury for public affairs from 2019 to 2021. Follow her on Twitter @MonicaCrowley.