It’s so interesting watching the latest talk from Washington come through. It’s all about potential tax cuts and what they mean. President Trump is touting a plan that would lower taxes for many businesses and people. He claims it will help the middle class. Pundits argue it mostly helps the rich. Either way, it’s interesting that very little attention is given to the budget deficits and the impact that the plan would have.
For as long as I can remember, the federal government has run a budget deficit. There were a couple of years under President Clinton when there was a surplus. However, that seems to have been a blip on the radar, and very much an anomaly.
The government spends more than it brings in. They’re the only level of government that is authorized to do so. States, cities, townships and the like must all balance the budget. The federal government does not have to do so.
And they don’t.
When a deficit is created, the government essentially issues bonds or bills and repay them down the road. For decades, it seemed, people would worry about this. They figured too many would devalue the dollar. People worried that it could spark inflation. Some worried what would happen if the market got saturated and there was no demand.
With all that, it was always thought that limiting or eliminiting deficits was the right idea.
I remember that budget deficits were a big point of most presidential elections as I was growing up.
Why No More Concern?
But it seems that the impact of budget deficits has waned. Our deficit has exploded over the past fifteen years. Yet, when the latest tax plan was introduced, the potential impact was nowhere near the top talking points.
So why is that? Why don’t budget deficits matter anymore?
Well, first, is that inflation seems to have really lowered the cost. With inflation at historic low numbers, the government has to pay very little interest. So, they can borrow practically for free.
Next, the demands for the US Dollar seems limitless. Where many once feared too much debt could destabilize the dollar, that hasn’t happened. At all. It seems that as long as we issue debt, there are foreign countries willing to buy it.
Finally, I think it’s seen as an investment. Cutting deficits would mean cutting programs and jobs. This would have a negative effect on the economy. Some might argue that deficit spending has partially helped the economy chug along for the last ten years. An argument could be made that cutting or reducing the deficit would be worse in the long run.
I don’t have any idea how this plays out. One could argue that there has to be a limit. However, you could also say that twenty years ago, the current deficits would have been unimaginable. If George H.W. Bush or Bill Clinton had suggested the deficits we have today, they’d have been run out of office in a hurry.
So, really, as far as what happens next, who knows? It’ll be interesting to watch, though.
Readers, what do you think about the current federal budget deficits? Do you think the current deficit spending is sustainable? What about adding even more with the proposed tax cuts?Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.