TAX CUTS AND FEDERAL DEFICITS

Well, the chickens are coming home to roost. and there are going to be bigger Federal deficits despite the public comments by Republicans that the tax cut will pay for itself.   They always say this, but it never happens.  After the tax cut, there is an increase in deficit spending by the government that does help boost the economy and smoothes a recession.  But now with a tax cut on top of a roaring economy, the Federal deficit is increasing, not decreasing or staying the same.

• The federal government recorded a $76.9 billion deficit in July, with increased government spending and tax cuts keeping the country on track to record its biggest annual deficit in six years.
• The Trump administration last month sharply revised upward its deficit estimates, projecting annual deficits will once again top $1 trillion next year.*

I hate to be hard on Bush-43,** but I think that having a tax cut during a war was criminal.  Having a tax cut during a recession may just happen to help to speed the economic recovery.  But to have a tax cut on a roaring economy, like we had to 2017, is pouring gasoline on a fire.  Companies will have a record amount of stock buybacks (see figure).  The best you can say about this is that it helps buoy up the stock markets, but stock buybacks are largely wasted money.  Rather than a tax cut, we should be paying off the deficit incurred because of the Great Recession.

(click on figure to enlarge)

I subscribe to Keynes who said that the government should borrow money during the downstage of the business cycle and pay it back on the up part of the business cycle.  We have been pretty good at borrowing money on the down part, but we forget to pay it back, including now when Federal deficits are on the upswing because of the tax cuts, rather than paying off the borrowing as a result of the Great Recession.

Republicans need a Democratic President so that they can rediscover their job of cutting the deficit, but a tax cut trumps all for Republicans.  At war, cut the taxes.  Roaring economy, cut taxes.  Irresponsible.

Note To Readers: The effect of tax cuts has been a central theme of this blog.  In a separate post, I will list my items that have something to do with taxes, including tax cuts.

*https://www.cnbc.com/2018/08/10/--us-budget-deficit-increases-21percent-on-track-for-biggest-gap-in-six-yea.html
** George W. Bush (Bush-43) is a candidate for worst president ever.   Not only did he preside over the financial collapse of 2008-2009, but got us involved in the quagmire of Middle East politics by going to war with Iraq, something we are still in.  I believe he is also the only president to have a tax cut during a war.  Unbelievable.  I don't blame him for Afghanistan war.  We had to do something, even if it ended badly.  Bush also showed sympathy for Hispanic illegals, which was admirable, but unfortunately, other events dominate.