The sales pitch was always that handing more money to the “JCs” would come back to the government from increased tax revenue from increased economic activity, hence, the cuts would “pay for themselves”. To my understanding of English, that means the tax cuts for “JCs” would not add to the debt at all.
From the last go around, 2017:
A decades-old economic theory is making a comeback. The theory: tax cuts can pay for themselves. Trump administration advisers have repeated this mantra to explain their corporate tax rate cut.
The BBB passed. It’s cost is now irrelevant, and will never be addressed by the regime again. More likely, the regime will be back with another “JC” tax cut program in a couple years, and tell the same story about how it “will pay for itself”, to ram it through.
More realistically, if today’s deficit is 6% and interest rates are 4% for a total of 10%, then 2% GDP growth plus 8% inflation does it, approximately (see formula below).
What force(s) will act to limit the growth of debt?
If interest rates are held too low, which is the inclination of the administration, then this will be inflationary.
On the other hand, tariffs are taxes that raise revenue and reduce the deficit. The overall, longer term inflationary impact of “more tariffs” is not clear to me.
Tariffs directly increase prices, but this could be a one-time effect. Tariffs reduce overall economic activity, which seems deflationary in the longer run and if countries reciprocate protectionist policies on US export products, this could be deflationary on those products within the US (excess sorghum and bourbon).
The first three are (annual) rates – GDP growth rate, inflation rate and interest rate. However, D is a percentage ratio rather than a rate of change. Adding and then comparing them doesn’t seem mathematically kosher. Could you explain?
I should have written above “per $ debt” (not GDP), for D, but still per unit time.
These are the units:
G: $ change per real $ GDP per time
I: $ change per real $ GDP per time
R: $ interest per $ debt per time
D: $ deficit per $ debt per time
They are all percent changes of dollars per time, so I think of that as a rate.
As stated above,
(G + I) is (percent) growth rate of nominal GDP
(R + D) is (percent) growth rate of debt
then compare the two growth rates, the larger determines whether ratio of debt/GDP grows or shrinks, as explained
It’s not! One problem is that the debt is increasing off a base of $36T while the GDP is increasing off a base of $27T. Here’s my handy dandy chart of debt versus GDP with the assumptions shown (budget deficit of $2T, interest rate of 4%, real GDP growth of 2.5%, inflation of 2.2%). Still a debt spiral.
Here is the chart at 6.2% real GDP growth. That works. But what would help even more would be to not spend $2T more than we have each year. Also, all these charts are “straight line” growth, so they’re not at all realistic. There’s no way we will ever see 6.2% (or 3.5%, or 3%) growth every single year for the next 20 years. Economies sometimes grow fast for a period, sometimes slow for a period, and sometimes contract for a period. Only a developing economy can show constant strong growth over decades (like China did until a few years ago).
