The market has been surging on the apparent belief that President-elect Donald Trump will be able to adopt a far-reaching tax cut and stimulus program that will ignite growth.
But an old nemesis for many politicians — the deficit — could stand in his way. From politics to markets to public perceptions, the deficit can be a tricky problem to maneuver. It's not insurmountable by any means — and doubting the president-elect has been a sucker's bet — but it should factor into investors' calculations about how much Trump can accomplish.
His promises in the campaign were soaring. Trump offered up a $6 trillion tax cut, including lower taxes across the board for most Americans and deep cuts to business taxes, a big infrastructure plan and higher military spending. He pledged to not reduce entitlement spending on Social Security and Medicare.
To be sure, his advisors say there will be little if any increase in the deficit, at least from the tax cut part of it. They say tax cuts, deregulation and better trade deals will cause growth to surge, even topping 4 percent from the current 2 percent levels. Also offsetting deficit increases will be sharp spending cuts to the nondefense, discretionary side of the budget.
Many economists remain skeptical that, for example, tax cuts generate sufficient revenue to pay for themselves. Potential trade barriers also could boost inflation and cut growth. Several political observers think Trump's plans to cut 1 percent annually from the shrinking nondefense discretionary side of the budget will meet with harsh resistance. The results, then, could be much higher deficits in the years to come, unless the growth and spending cuts materialize to offset them.