By Harry Stein*
After years of hysterical warnings about a “looming fiscal crisis” from deficits under President Barack Obama, Republican leaders in Congress are suddenly willing to increase deficits for President Donald Trump. This deficit flip-flop is certainly hypocritical, but it also obscures the true nature of the threat posed by Trump.
Trump is taking office at a time when America’s fiscal system is extremely strong. The primary threat is not that America will go broke; it is that America’s fiscal strength will be wasted and abused. Trump and his allies in Congress are poised to privatize America’s fiscal strength to further enrich a wealthy few and give corporations more power over ordinary Americans.
Markets understand America’s fiscal strength, even though politicians whip up fears of a debt crisis to justify unpopular cuts to successful federal programs — a dynamic I call “fiscal hysteria” in a new article for the Harvard Law and Policy Review.
Interest rates on the Treasury bonds that finance the national debt have been falling for decades and are currently extremely low, which would not be the case if investors doubted whether the United States could pay back its loans. Furthermore, economists at Moody’s Analytics report that the United States has substantial capacity to incur more debt should it be necessary.
This means that Trump has inherited a federal budget that gives him tremendous power. Based on the tax plans from both Trump and House Republicans, the largest application of this fiscal power will be tax cuts for the wealthy and corporations. Rather than using these revenues to finance programs that benefit all Americans, these tax cuts concentrate even more wealth among the elite few.
Corporations would be further empowered by several of Trump’s fiscal policies. Private companies are already jockeying for contracts to build Trump’s border wall — a project that will likely to use eminent domain to seize land from its current owners. According to the conservative Daily Caller, “defense contractors couldn’t be happier” about potential profits from Trump’s military buildup. And privatization is also at the core of the infrastructure plans touted by Trump and some in Congress.
House Speaker Paul Ryan, a Wisconsin Republican, refuses to commit to preventing deficit increases from these costly policies, so progressives may be tempted to adopt the same fiscal hysteria that Ryan used so effectively to attack Obama. But this will only play into the hands of Trump and his allies in Congress.
Economist Jared Bernstein warns that, “Deficit hysteria — often promulgated by those who are happy to cut taxes without making up the revenue loss — has become a stalking horse for shrinking government under the guise of fiscal rectitude.”
This antigovernment agenda is another way Trump can use the fiscal system to give corporations more power. Budget cuts that undermine agencies responsible for financial supervision and environmental enforcement would empower Wall Street and big polluters. Rolling back federal health-care programs would increase the power of insurance companies over American families.
These cuts are extremely unpopular, which is why their advocates invoke the specter of a fiscal crisis to claim that the American people have no choice but to accept this agenda. Fear of a debt crisis is less effective to stop tax cuts, since nobody wants to give more money to a government that appears hopelessly broke.
The myth that America is somehow bankrupt may be the most pernicious political barrier blocking ambitious progressive policies that would make a real difference in the lives of the American people, such as making child care affordable or preventing lead poisoning from contaminated paint, soil, or water.
Congressional leaders used the myth of American bankruptcy as an excuse for inaction under Obama, and may now use the same myth to enact their agenda under Trump.
Good fiscal policy should expand opportunity by responding to changes in the economy. Progressives should not emulate the way that Ryan has shifted his posture on budget deficits now that a new political climate creates opportunities to empower a privileged few.
Progressives should also insist on fiscal sanity, which is more important than ever in an era of “alternative facts.” This means using honest numbers that provide a realistic look at the federal budget and the cost of new proposals. New long-term commitments — whether they are in the form of spending programs or tax cuts — should include a realistic plan to finance the costs.
Instead of falling into the trap of fiscal hysteria, progressives must focus on how Trump is squandering and privatizing America’s fiscal strength. The fiscal system should be a powerful tool to make the economy work better for all Americans. Trump is using it to enrich the wealthy and empower corporations.
*Harry Stein is the director of fiscal policy at the Center for American Progress.
This essay was originally published on MarketWatch.