There were many dilemmas facing President Trump when he entered office in January of 2017. One had to do with the general state of the federal government’s spending and tax policies. The budget had a deficit of three-quarters of a trillion dollars. Government spending was wasteful and extremely inefficient. And high tax rates were stifling growth.
In addition, the prior administration had decimated the military. And because of the sequester signed in 2011, every dollar increase in defense spending had to be matched by a dollar increase in domestic spending.
A sense of urgency was further created when he looked at the public debt, which was approaching $20 trillion.
As a businessperson, he understood that expenses simply cannot exceed revenues every year. The federal government didn’t seem to understand that as there were 59 annual deficit budgets in the prior 63 years. He was forced to set priorities.
The economy was experiencing relative stagnation. Since 2008, economic growth averaged about 2% annually. Prior to that annual economic growth was always in the 3% to 3 ½% range. The top priority had to be to expand the economy to get more people working and earning better wages. That would increase tax revenue, decrease government spending and reduce the deficit.
Trump also knew that a strong economy would make it easier to solve social problems.
Trump immediately reduced growth stifling regulations through executive orders. He then convinced Congress to cut tax rates for all Americans. Economic growth immediately increased.
He then said the military must be rebuilt to be the strongest in the world. Trump adopted the “peace through strength” philosophy. That would require spending $750 billion per year for at least two years. Because of the sequester, he had to agree to increases in domestic spending.
In spite of what many people argue, the tax cut did not add one penny to the deficit since tax revenue increased after the tax cut in both 2018 and 2019. But the huge increase in spending for the military and on the domestic side resulted in trillion-dollar deficits. The public debt ballooned to $23 trillion.
This year, Trump expected strong economic growth. He already had the unemployment rate down to historic lows for nearly every demographic, meaning more Americans were working, supporting themselves and contributing tax dollars to pay for the government expenditures.
But then the Coronavirus struck. The economy had to be shut down, plunging the country into recession. More than 22 million Americans lost their job in two months, as both service and manufacturing businesses shut down. Businesses both large and small were on the verge of shutting for good. Despite the government’s fiscal woes stimulus was needed.
Working with Congress, Trump crafted a stimulus package that gave virtually all Americans free money. For a family of four, the stimulus was $3,400.
Unemployed workers collected an unemployment benefit from their state. Trump added $600 per week to that benefit. That resulted in most unemployed being made whole. In fact, more than two-thirds of unemployed workers were receiving more money than they did when they were working.
Trump arranged loans for nearly all businesses. If the businesses remained open, the loan turned into a grant which did not have to be repaid.
While these stimulus bills added $3 trillion to the 2020 deficit, which was projected to be $1 trillion before the virus, the stimulus worked exceptionally well. The stimulus was implemented in April when the unemployment rate was 14.7% and when retail sales have plunged by nearly 25% since March.
By July, more than 9 million workers went back to work, which is almost 40% of the total that lost their job. Also, retail sales increased back to the pre-recession level. In May, June and July, the economy had the fastest three-month growth ever. The economy is on its way back.
But some people are hurting. Additional stimulus funds are needed and more help for the long term unemployed. The extra $600 per week they were receiving expired in August.
So now Trump wants to spend $1 trillion to help these people and to aid with other public services like state government, public schools and the Post Office. But the Dems in Congress want much more. They want to spend up to $3.4 trillion.
Trump is right to hold the line and insist on not spending more than $1 trillion. Remember the deficit is already up to $4 trillion this year. The public debt will be at least $27 trillion
Trump is right. Hold the next round of stimulus to $1 trillion.