Wall Street has been betting that Donald Trump will get his big tax cut plan through Congress — which would be supposedly good for stocks and the people who own them.
The political pundits can jawbone all they want. But the logic is painfully simple:
1. Even with tax rates as they are, the U.S. budget is heavily in deficit and the national debt is predicted to keep spiraling upwards — as the Congressional Budget Office has confirmed.
2. Tax cuts will increase that deficit still further. (No, tax cuts do not “pay for themselves,” unless maybe you are cutting them from those ridiculous 70%-90% levels seen after World War II. Cutting taxes today might in theory stimulate enough extra growth to clawback some of their cost, but they will not generate a net gain.
3. Republicans cannot credibly push a plan that increases the deficits, because most of them — including Donald Trump — ran on a platform of saying the deficit, and the spiraling national debt, is a disaster.
4. Therefore, if Republicans want to pass the tax cuts, they will need to cut federal spending.
5. Trump is already pushing to raise spending on defense and infrastructure, making the challenge even greater.
It is impossible to cut spending overall without cutting Social Security and Medicare as well as Medicaid.
6. Mathematically, it is impossible to cut spending overall without cutting Social Security and Medicare as well as Medicaid. Along with debt interest, which cannot be cut, they already take up 58% of the budget and that figure is rising. Throw in defense and veterans and we’re talking about 77% of the budget now, and an estimated 83% in 10 years.
To put it another way, in 10 years’ time those three social programs, along with debt interest, defense, and veterans are projected to consume more than 100% of federal tax revenues. They’ll put the budget in deficit even if Congress eliminates all other programs.
7. Congress might in theory find some efficiency savings in Medicare and Medicaid. But the biggest ticket item is Social Security, and it just consists of checks sent to grandma. There is no way to cut Social Security without slicing into those checks. There is no mystery X-factor to eliminate and only hurt “bureaucrats.”
8. Any cutbacks would risk producing serious hardship for the elderly. We have a retirement crisis in this country. Few people have adequate savings for a life after age 65 that may last 30 years. Only a third of those in work today say they’ve saved over $100,000, and a quarter have less than $1,000. America’s retirees will continue to depend on Social Security and Medicare — and Medicaid in many cases — just to live. Meaningful cuts just aren’t credible.
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9. Older people vote. They vote more than the young. Everyone in Congress knows this all too well.
10. Furthermore, there is no political majority in America — none — for cutting Social Security or Medicare, least of all to pay for tax cuts.
Instead, a succession of opinion polls conducted in recent years shows that majorities favor raising taxes over cutting back on entitlements. Other polls have found that only a third of the public supported scaling back Social Security benefits to deal with the budget deficit. Many more, well over 50%, preferred raising taxes instead. And those who felt strongly about defending benefits outnumbered those who felt strongly in favor of cuts by two to one.
Anyone who opposes cutting Social Security to control the deficit isn’t likely to favor slashing Social Security to pay for tax cuts. Some 61% told Gallup last year that the rich paid too little tax, including 46% of self-styled “conservatives.” Moreover, 67%, of the general public thought corporations paid too little tax.
Logically, therefore, Donald Trump can expect to get his tax cuts passed only if the Republicans in Congress agree to raise the deficit still further, or cut Social Security and Medicare.
Good luck with that.