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As Trump hustles to nail down a tax overhaul, he faces the biggest federal debt surge since Truman

Harry Truman (1884-1972), 33rd president of the U.S.
AFP | Getty Images
Harry Truman (1884-1972), 33rd president of the U.S.

After issuing a blizzard of executive orders in his first weeks in office, President Donald Trump is again dangling his signature campaign promise of deep tax cuts for American businesses and households.

Facing pressure to release a specific plan, Trump promised a group of airline executives Thursday that a formal proposal is coming, soon.

"Lowering the overall tax burden on American business is big league ... that's coming along very well," he said. "We're way ahead of schedule, I believe. And we're going to announce something, I would say, over the next two or three weeks that will be phenomenal in terms of tax," Trump said.

But the nation's soaring debt will complicate any effort to slash taxes.

People in both parties have been working for more than two decades to engineer the first full-blown overhaul of the U.S. tax code since 1986. Since Trump first rolled out a series of broad-brush tax proposals in the heat of last year's presidential election campaign, tax policy watchdog groups have been eagerly awaiting more details of his plan. Many agreed Trump's initial proposals just didn't add up.

Trump swept into office based on high expectations of tax relief for middle-income workers, small businesses and global corporations, but it remains to be seen how the administration plans to offset any cuts in the more than $3 trillion the Treasury collects every year to keep the government funded.

To win approval from Republican budget hawks on Capitol Hill, the Trump administration will need to offset any proposal to lower taxes with cuts in spending. And, as many previous administrations have learned, there is little "discretionary" spending left to cut.

More than two-thirds of every federal dollar of tax revenue is considered "mandatory" spending, much of which is off-limits. That includes Social Security, Medicare and interest on the national debt.

For the past two decades, Congress and the White House have scored only mixed success as they struggled with the growth of federal spending. The current strategy, the so-called sequester, placed caps on the growth of spending categories.

But those measures failed to address the surge in Treasury debt that followed the 2008 financial crisis, issued in part to prevent a deeper economic catastrophe.

Between 2007 and 2016, the national debt more than doubled as a share of GDP, to 77 percent from 35 percent, according to the Committee for a Responsible Federal Budget, a nonpartisan watchdog group.

That means Trump begins his administration with higher debt than any president since Harry Truman in 1945, when debt was 103 percent of GDP, according to the CRFB.

Worse, a potential crisis looms from the rise in interest rates from record-low levels engineered by the Federal Reserve to revive the economy from the Great Recession. Even if the Treasury stopped borrowing new money tomorrow, the cost of paying interest to investors who hold the existing $19.9 trillion in federal debt has already begun to rise.

Trump has proposed making up for revenue lost through tax cuts on individuals and corporations by adding new taxes to the huge piles of offshore corporate profits. American companies have long kept those profits out of the country to avoid paying U.S. taxes.

But it remains to be seen what those corporations will demand in return for paying taxes on profits that have been stashed out of Uncle Sam's reach.

Until more details are available, Trump's campaign tax pledges don't add up, according to an analysis by the conservative Tax Foundation. Even after factoring in the potential economic growth that might come from lower taxes, the group's recent analysis estimated Trump's plan would create a $10 trillion budget shortfall over 10 years.

Without massive spending cuts, the U.S. would likely have to pay for a shortfall with borrowing, further raising the mounting pile of Treasury debt outstanding. The added interest on that debt would also add to the budget shortfall, the Tax Foundation analysis found.

The White House did not respond to a request for comment.