The Looming Trump/GOP Tax Hike

Republicans are going to saddle the country with a massive tax increase, and I’m not referring to Trump’s huge protectionist tax increase on American consumers and producers.

Instead, I’m referring to my long-held view that a failure to address the problem of runaway entitlement spending inevitably will lead to massive tax increases.

And because there are not nearly enough rich people to finance big government, that tax increase overwhelmingly will fall on lower-income and middle-class taxpayers.

Sadly, Trump and Republicans could have used the current budget as a vehicle for much-needed reforms.

Instead, they’re extending the 2017 tax cut (a mostly good idea) while doing almost nothing to address the long-run spending problem (an utterly terrible choice).

As a result, Jessica Riedl of the Manhattan Institute projects a massive spike in interest payments in coming decades.

However, it’s inconceivable that interest costs will ever reach 6 or 7 percent of GDP, much less 8 or 9 percent of economic output.

We’ll have a Greek-style crisis of some sort, presumably accompanied by massive damage to financial market and 1970s-style inflation.

Jessica’s analysis is from a conservative perspective.

But folks on the left have reached the same conclusion. In a column for the Wall Street Journal, William Galston explains how Republicans are dooming the nation to a massive tax hike.

…the nonpartisan Committee for a Responsible Federal Budget estimated that the bill would have increased the national debt by $3.3 trillion more than the CBO’s baseline projection for the next decade, and the projected debt-to-GDP ratio would rise from the baseline 118% to 125%. Worse still, if all the gimmicky “temporary” measures in this bill were subsequently made permanent, as often happens, the national debt would rise to $5.2 trillion above the baseline projection, and the debt-to-GDP ratio would surge to 129%. This was the context in which Moody’s downgraded the United States’ sovereign credit rating on Friday, citing the government’s persistent failure to adopt measures that would “reverse the trend of large annual fiscal deficits and growing interest costs.” …As the U.S. population continues to age, the costs of Social Security and Medicare as a share of GDP will mount inexorably. Together, these two programs will account for more than 100% of the increase in federal spending as a share of GDP over the next decade. …These demographic and political realities point to the same conclusion: that increased revenue will be needed to secure these programs for the long term. …the next president will be forced to address this issue… The necessary changes would be easier to bear if they could be phased in before the crisis hits, but past performance suggests that the government will act only when it can postpone difficult choices no longer.

What’s tragic is that it was only about 10 years ago that Republicans had presided over a five-year spending freeze and were also voting for the Paul Ryan budgets that were predicated on genuine and meaningful reform of Medicaid and Medicare.

Sadly, those Tea Party-inspired Republicans have morphed into big-government hacks. The modern-day version of Rockefeller Republicans.

P.S. Nothing written above should be interpreted in any way as being favorable to a tax increase. That’s a recipe for making a bad situation even worse. When the “unavoidable choice” gets made, I want the option that will actually work.