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Offbeat Trump Tax Cuts Can’t Stop The Impending Fiscal Storm

18:06  14 june  2018
18:06  14 june  2018 Source:   dailycaller.com

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But we can weather the storm , with sensible fiscal restraints. According to the latest projections of the Congressional Budget Office (CBO), the national debt is now approaching its all-time high. The Trump tax cuts appear to have goosed the economy, but reversing (most of) them and spending the

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Impending fiscal storm in the USA, Shutterstock/ By Mike Mareen © Provided by The Daily Caller, Inc. Impending fiscal storm in the USA, Shutterstock/ By Mike Mareen

Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of MSN or Microsoft.

We can’t grow our way out of this mess.

The latest government numbers confirm America is sailing straight into a major fiscal storm — perhaps sooner than many expect. The question is not whether, but when. Even sustained economic growth can’t steer us clear.

But we can weather the storm, with sensible fiscal restraints.

According to the latest projections of the Congressional Budget Office (CBO), the national debt is now approaching its all-time high. It has reached $21 trillion, on its way to $29 trillion in 2028. Total federal debt has surpassed 100 percent of GDP. The warning light is flashing.

House passes Trump's plan to claw back $15 billion in spending

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The latest government numbers confirm America is sailing straight into a major fiscal storm --- perhaps sooner than many expect. Every single Democrat senator owes Hillsdale an apology for the blatant lies spread about the college during Senate debate over tax reform. → Read More.

Uncle Sam is now borrowing just to pay the interest on his past borrowing. Net interest payments consume 7.5 percent of federal spending today, and by 2028 will consume twice that share. By 2023 gross federal interest costs are expected to equal 70 percent of new debt.

We’re sinking in a debt-trap with no turnaround plan in sight.

According to the most recent trustees report, Social Security will run out of money in 2034, just 16 years from now. Seniors will suffer a permanent, 21-percent reduction in their monthly benefits, assuming Congress fails to act. Realistically, Congress will act and Social Security will be saved, but one way or another, we will all get stuck with the bill.

The Trump tax cuts appear to have goosed the economy, but reversing (most of) them and spending the money on infrastructure and green energy, as congressional Democrats propose, would obviously not close the deficit gap — and probably would slow the recovery.

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The question is if tax cuts can offset the cyclical slowdown that is likely to follow. Since the last recession, the U.S. has had three cyclical slowdowns, in Despite hopes that economic growth momentum from 2017 can be sustained through 2018, a slowdown is likely to take hold this year.

“At best, tax cuts can finance a fraction of their costs through faster growth – and maybe not even that.” Their key points Disclosure: The Committee for a Responsible Federal Budget receives funding from the Peter G. Peterson Foundation. The Fiscal Times is separately funded by Peter.

On our current path, a debt-induced financial collapse is in our future and may be closer than we think. That’s why the U.S. Debt Default Clock’s minute hand now stands at “five minutes to midnight.”

To be clear, we’re not in danger of a catastrophic bond default, the kind that can trigger a global economic meltdown. Uncle Sam has sufficient tax revenue to pay every penny of principal and interest on its outstanding Treasury debt, indefinitely.

But there are other kinds of “default”: inflation, tax hikes, spending cuts. Indeed, that sort of “default” is now inevitable.

While spending will grow over the next decade by a cumulative 12 percent, tax receipts will grow by just 11 percent. The deficit will widen from 3.8 percent to 4.8 percent of GDP. And this gap gets bigger the farther one looks.

To close this yawning gap in ten years without tax hikes or spending cuts, the economy would need to grow by about 5 percent a year on average. CBO predicts growth of just 1.6 percent a year.

Spending Cuts Package Faces Uncertain Senate Fate

  Spending Cuts Package Faces Uncertain Senate Fate A nearly $15 billion package of spending cuts is now in the Senate’s court after the House late Thursday voted 210-206 to pass the “rescissions” measure. Most Republicans voted to narrowly put the cuts package over the top, though there were 19 GOP defections. Democrats voted unanimously against the measure. The $14.7 billion collection of cuts from unspent funding will now head to the Senate, where some Republicans, such as Sen. Lisa Murkowski of Alaska, have sounded skeptical of the rescissions effort.

The debate highlights conflicting schools of thought over tax cuts in the party of Reagan, which “I believe that the biggest remedy for our fiscal situation is growth in the economy,” he added. That however hasn’ t stopped Republicans from predicting that cutting taxes will increase the GDP by a

The Trump tax plan simplifies the tax structure but reduces revenue by .5 trillion. Business tax cuts are permanent. It cuts income tax rates, doubles the standard deduction, and eliminates personal exemptions. The corporate cuts are permanent, while the individual changes expire at the end of 2025.

On our current path, no plausible amount of economic growth can by itself transform deficits into surpluses. Growth is necessary, but not sufficient. Spending restraint is indispensable.

Why does Uncle Sam live continuously beyond his means? Because he can. He can raise his own credit-card limit. And he can escape some of his debt burden by repaying his creditors in debased currency, via Federal Reserve-generated inflation.

Spending reduction is the least-worst way to minimize the damage. And yet we can safely predict Congress will never reduce spending while it has the power to raise its own credit-card limit. It’s a Catch-22.

Realistically, our only hope is to change the rules. We need to curb Congress’s borrowing power — give it some adult supervision. We need a mandatory co-signer on any increase in the total level of federal debt, which will require a constitutional amendment.

In our constitutional system, the logical candidate for the co-signer job is the states.

Obviously, Congress will be reluctant to give up any of its existing power (see how it has refused to pass a balanced budget amendment). So the states would have to unite to force the amendment through.

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Mission accomplished. The neoclassical economists of the late 19th and early 20th century believed the government should always balance its budget. Eventually, they mostly gave way to the theories of John Maynard Keynes, who argued that the government should deliberately run deficits during recessions.

It takes 38 states to ratify a constitutional amendment. That means we would need 38 states to agree on, and formally demand, a specific, pre-drafted text. Happily, five states — Georgia, Alaska, Arizona, North Dakota, and Mississippi — have the ball rolling already. They’ve provisionally approved a pre-drafted amendment that would require the consent of a majority of the state legislatures to raise the federal debt ceiling. The amendment would be self-enforcing via automatic across-the-board spending reductions, and it also contains a provision requiring three-fifths congressional majorities to raise taxes.

The five states have entered into a formal interstate agreement, the Compact for America, to help them reach the magic number of 38 states.

A long shot? Sure. But what’s the alternative? We can’t grow our way out of this mess. We also need fiscal restraint.

And the state-led Compact for America is the most serious proposal out there for actually achieving it—and weathering the coming storm.

Dean Clancy, a former senior Republican budget official in Congress and the White House, is a volunteer advisor to the Compact for America Educational Foundation and a member of the Debt Default Clock Review Committee. The opinions expressed in this article are his own. Follow Dean on Twitter.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

Senate Rejects White House Plan to Cancel Unused Funding .
Two Republicans, Richard M. Burr and Susan Collins, broke with their party to oppose the plan, which was intended to broadcast fiscal responsibility.WASHINGTON — The Senate rejected on Wednesday a White House plan to rescind nearly $15 billion in unspent funding that had been approved in past years. Two Republican senators joined Democrats to defeat what had been a largely symbolic effort.

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