OpEd: Trump's tax cut isn't to blame for Washington's rising deficits
- You don't have to be Sherlock Holmes to figure out that if tax revenues are surging and the debt is still rising, then the culprit for all the red ink has to be increased government spending.
President Trump never comes off as the humble type. But there's a major policy success that he and his fellow Republicans haven't spent enough time touting: The increasing tax revenues that have been pouring into the federal treasury.
This comes despite the overwhelming doomsday predictions by Trump's opponents that the 2017 Trump tax cut would reduce those revenues.
The numbers don't lie. Federal tax revenue soared to a record $806.5 billion in the first three months of fiscal 2020. That continues the trend of record tax revenues that have been coming into the Treasury over much of the last two years.
These results are the strongest argument that tax cuts do indeed grow the economy in a way that widens the tax base and ends up bringing in more money to Uncle Sam in the end.
But here's the problem: deficits are still going up. In fact we're back on a pace to hit a $1 trillion deficit this fiscal year for the first time since 2012. You don't have to be Sherlock Holmes to figure out that if tax revenues are surging and the debt is still rising, then the culprit for all the red ink has to be increased government spending.
Sure enough, federal spending also hit a record $1.16 trillion during this past fiscal quarter.
The above scenario represents two key missed opportunities for Trump and congressional Republicans. First, the fact that these tax cuts haven't just boosted the economy but have also boosted tax revenues needs to be repeated over and over. Because the Democrats and other critics are going to increasingly point to the rising budget deficits and will surely blame the Trump tax cuts for them.
The Trump team needs to appeal to the simple logic that if tax revenues are rising, the tax cuts can't possibly be the reason for rising federal debts. This is simply good political defense, and you can be sure the White House and the Republicans are going to have to play defense very soon.
That's because the party out of the White House usually plays the role of deficit hawk, only to reverse that role when it retakes the presidency. But Trump and the rest of the Republicans are actually getting a bit of a temporary reprieve from the usual deficit pushback thanks to so many Democrats on the presidential campaign trail who continue to promote even more massive spending.
Yes, candidates like Senators Bernie Sanders and Elizabeth Warren claim that tax hikes on the rich will pay for their multi-trillion dollar "Medicare for all" and student loan forgiveness promises. But the more the experts look at those plans, the more the numbers simply don't add up.
Despite this delay, the president and the Republicans need to find the courage to go on offense against spending. It's not as if the administration and the GOP don't know how to talk the talk.
The first Trump budget proposal in 2017 called for a flurry of budget cuts and included some hard truths about the unsustainability of much of our entitlement spending.
Based on how things turned out that year, it appears the administration and Congressional Republicans backed off much of the spending cut push as a compromise to get the Trump tax cut plan passed.
Of course, both Republicans and Democrats have never really needed much of an excuse to avoid making the spending cuts both sides lack the courage to enact. While politicians continue to portray the public as being unwilling to accept any budget cutbacks, the facts don't back up that claim.
Over the last decade, many polls have shown that Americans are willing to either slash or at least hold spending steady on almost every government program. That even includes support for some defense cuts, especially the idea of closing many foreign military bases which would save billions of dollars right away.
Logic also tells us that changes to Social Security isn't the third rail of politics the so-called experts say it is. With poll after poll telling us that Americans under the age of 50 are not expecting to receive all or even part of their promised Social Security benefits, how can anyone argue that those same Americans would oppose making reforms to a benefit they're not expecting to fully get?
More importantly, Social Security has become more of a Ponzi-like scheme as it's forcing younger workers to pay more and more into a fund that's projected to be tapped out by the time they're eligible to get their money back. But ask your representatives in Congress to fix this, and they're likely to run for the exits.
Now, we're hearing that the White House is preparing a new round of tax cuts. At the same time, Trump told CNBC's Joe Kernen at Davos this week that he's open to some entitlement spending cuts and reforms that would include Social Security.
That combination isn't going to fly unless Trump and the rest of the GOP do a better job of explaining why spending is the problem and how the tax cuts aren't to blame. As for finding the courage to actually go ahead with those spending cuts, no one should hold their breath.
Jake Novak is a political and economic analyst at Jake Novak News and former CNBC TV producer. You can follow him on Twitter @jakejakeny.