Monday, November 27, 2023

Now Washington's Record Interest Payments on Debt is Trump's Fault Too

Click here to read the original Cautious Optimism Facebook post with comments

6 MIN READ - A government budget dispatch from the Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff.
Selected budget statistics for reference purposes:

Tax revenues (not inflation adjusted):

Reagan tax cut, 1981-1989: $599 billion to $991 billion (+65.4%)
Obama tax hike, 2013-2017: $2.78 trillion to $3.32 trillion (+19.4%)
Trump tax cut: 2017-2022: $3.32 trillion to $4.897 trillion (+47.7%)

Government spending (not inflation adjusted):

Reagan and Democratic Congress, 1981-1989: $678 billion to $1.144 trillion (+68.7%)
Obama and Republican Congress, 2013-2017: $3.45 trillion to $3.98 trillion (+15.4%)
Trump/Biden and mix of Republican and Democratic Congresses, 2017-2022: $3.98 trillion to $6.27 trillion (+57.5%)

(reference links at end of article)

Now that the U.S. Treasury is shelling out more to pay interest on the national debt than for military defense a new round of blame-gaming has commenced with liberals once again blaming Trump. This time the culprit is Trump’s 2017 tax cuts which the Left characterizes as “giveaways to the rich,” a “giveaway” referring to the IRS forcibly taking away a little less than it has in previous years.

Blaming tax cuts for massive deficits and debt is nothing new for the Left. They love to blame the national debt on Ronald Reagan’s 1980’s tax cuts and George W. Bush’s 2001 tax cuts. According to them, every shortfall in the Treasury's bottom line should be blamed on giant revenue holes brought about by an evil tax break, and if only we had left tax rates the same or better yet raised them there would be no deficit and no debt.

So just how bad was the revenue shortfall resulting from Trump’s tax reform?

From fiscal year 2017 (the year Trump signed the tax bill) to the end of FY2022, federal tax revenues rose from $3.32 trillion to $4.897 trillion, an increase of 47.5% which outstrips both inflation and nominal GDP.

That’s quite a revenue boost for a tax cut that allegedly starved the IRS for money.

But wait, when confronted with these numbers liberals will retort (and I have literally seen these responses) that “well, tax revenues would have been MUCH HIGHER had Trump not cut taxes.”

Of course we can’t go back to 2017 and replay history with a tax increase, but we can look at the fiscal effects of the last federal tax hike—under Barack Obama.

In the waning weeks of 2012 Obama, who had just secured his re-election, was able to win his version of an expiration of the George W. Bush era tax cuts: allowing them to expire for wealthy taxpayers only. Hence the Left got what it has always coveted: a tax hike on the rich while sparing the middle and working classes (they only got stuck with 200% higher health insurance premiums a year later when Obamacare went into full effect).

The result? From FY2013 to FY2017 tax revenues rose from $2.78 trillion to $3.32 trillion or +19.4% in four years.

Of course that was only through four years compared to five years after the Trump tax cuts, so on a compounded annualized basis the post-Trump tax cuts revenue benefit was +8.08% versus +4.53% for Obama.

But wait, inflation has been higher in the post-Trump years, especially in late 2021 and 2022.

That’s quite true, and if we adjust for CPI the annualized increases in federal revenue narrow with Trump still beating Obama with +3.6% real annualized gains versus +3.2%.

But not only did Obama’s tax hikes produce inferior revenue gains to Trump’s tax cuts, Trump had the added handicap of the Covid pandemic and state governments shutting down the economy—with unemployment soaring to 14%—while Obama had no crisis whatsoever in the 2013-2017 period, the closest being the 2008 financial crisis which by then was just a five-year old memory.

Obama’s tax hikes also led to slower economic growth—average real GDP growth of +2.37% from 2013 to 2017 versus +2.65% since 2017. Once again, Trump’s GDP performance was kneecapped by Covid, like every other country in the world, and still produced superior results.

The same can be said about the Reagan tax cuts. Far from starving the federal government for money, tax revenues under Reagan’s eight years soared from $599 billion to $991 billion or up 65.4%.

Of course you never hear any of these numbers from the Left—including from the press... but I repeat myself—just the broad accusations that “Trump’s tax cut ballooned the deficit!”


More importantly, here’s the part the Left never discusses when it comes to debt and deficits: the contribution made by overall government spending.

As we just mentioned, in the five years since Trump’s tax cuts federal tax revenues increased by 47.5%. What we haven’t mentioned yet is that during the same period government spending expanded at a much faster rate of +57.5% ($3.98 trillion to $6.27 trillion).

One could argue that higher spending is due to Covid-related measures, but the pandemic ended two years ago and there’s no reason the federal government should be spending $6.27 trillion today.

One could also argue that Ukraine is the cause for such elevated spending, but total Ukraine outlays have so far been $113 billion over more than a year and a half or the equivalent of $71 billion per year. Strike that out and 2022 federal spending falls from $6.27 trillion to $6.20 trillion, a reduction of 1.1%.

Also since 2017 total federal defense spending has risen by 36.0% ($599 billion to $815 billion) while what accountants call “entitlement” spending has risen by 53.2% ($2.899 trillion to $4.440 trillion).

While a 53.2% increase is definitely greater than a 36.0% increase, the real difference lies in the gap between the actual dollar figures: $815 billion for defense versus $4.440 trillion for human priorities, 5.2 times larger.

And although it’s a smaller budget item, energy and environmental spending has risen the fastest of all, up 89.2% which is to be expected with all the cash the Biden administration has thrown at green programs.

So clearly the problem with the debt, the deficit, and the giant interest payments of 2023 is not rooted in tax cuts, for federal revenue is up 47.5% since Trump signed them into law. Instead, as is nearly always the case, Congress has found a way to spend $1.22 for every new $1 of tax revenue.


Incidentally the same spending math applies to budgets during the Reagan and Obama years, although as diametric opposites.

Although tax revenues soared by 65.4% after Reagan’s tax cuts, federal spending rose even faster, up 68.7% from $678 billion to $1.144 trillion. The reason? The opposition Democratic Party had full control of Congress for six of Reagan’s eight years and control of the House for the remaining two years.

And liberals love to blame 1980's spending on defense. Well in 1981 defense spending was less than half of “entitlement” spending at $157 billion to $362 billion. By 1989 defense spending was a bit more than half that of “entitlement” spending at $303 billion to $569 billion.

Interesting change since the 1980’s: entitlement spending used to be double that of defense. In 2023 it’s over five times defense spending.

In Obama’s case we have the reverse situation. Government revenues rose by 19.4% in the four years after his tax hike on the wealthy—liberals praising the tax hike for a shrinking deficit.

But during those same four years federal spending slowed to a meager gain of only 15.4%. Reason? The GOP controlled all of Congress during two of those years and controlled the House during the other two. They forced fiscal discipline on Obama which liberals and the press slammed Republicans for at the time. Remember the press and Democrats slamming sequestration and government "shutdowns?"

Today they praise the same deficit reduction the GOP Congress forced and try to credit Obama for it.

So in conclusion the mathematical correlation between high deficits or low deficits is consistent with government spending patterns, not revenues. Whenever you see deficits balloon, you find massive government spending growth outstripping revenue gains that themselves even outstrip inflation and GDP. Whenever you see deficits narrow you see government spending growth constrained, always by a GOP Congress which is usually fighting with a Democratic president.
(from the Economics Correspondent) Economic data reference links:

Federal tax revenues and spending/outlays by fiscal year (White House)

Spending by defense and entitlement superfunctions (White House)

Real GDP by year (St. Louis Federal Reserve)

CPI level by year (St. Louis Federal Reserve)

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