President Donald Trump campaigned on economic Nirvana promises…
He vowed to kill the inflationary dragon. He has promised to change the tables of our trading partners and bring manufacturing back to the American coast. He showered the public with tax cuts, put fresh cash in consumer pockets, and promised that they could use it.
Now, just four months after Trump 2.0, our fierce 47th President is aiming to close the deal on what he says “The biggest tax cut in American history.” His Legislative masterpiecesThe One Big Beautiful Bill Act (OBBBA) casts all and the financial pledge of kitchen sinks.
There was a glorious extension of his 2017 tax cut, which reduced personal income and real estate taxes. There are tips, overtime salaries, and even tax credits on car loan interest. Domestic research and development costs have incentives.
Also, since it’s not too early to start speculating about US stock indexes, the OBBBA includes a child’s “Trump Account” that comes with a $1,000 deposit from the federal government. This is on top of the $500 child tax credit. To round out the economy’s adoption, there is a $46.5 billion package to resume immigration behavior.
According to the White House, these policies will drive GDP robust upwards of 2.6-3.2% over the long term. They also foresee the median income households enjoying an extra $5,000 a year on takeaway pay. Additionally, those making between $30,000 and $80,000 a year should expect a comfortable 15% reduction in their tax burden.
At the same time, the administration is advocating for a $1.6 trillion deficit cut. Is it really possible to rain cash on the economy and propose serious spending cuts, yet somehow manage to reduce the deficit?
Let’s explore…
Huge obbba
Trump has inherited $36.2 trillion (now $36.9 trillion) of national debt. Of this, during his first presidency, his watches amounted to around $8 trillion. But he wants to spend more.
Nonpartisan beans from the Congressional Budget Office (CBO) have discovered that the OBBBA will add another $3.8 trillion to its debt. This is a debt that exceeds the $22 trillion additional debt that will accumulate over the next decade. The mountain of debt facing the US government makes it difficult to pay interest on that tab, or on that tab.
One day may come, as predicted during last week Bond Auctionthe Ministry of Finance is struggling to find buyers for its debt. To sweeten the pot, the Treasury must accept higher interest rates. This will blow away your overall debt even further.
Alternatively, the Federal Reserve could further reduce the value of the dollar with more quantitative easing. This is a very inadequate solution. It will expand and increase debt, creating even greater crisis.
Certainly, Team Trump is well aware of the country’s massive debt and deficit issues. Trump recently suggested that his “golden visa” program could magically erase some of his national debt. Treasury Secretary Scott Bescent admitted that he is in debt “An unsustainable road.”
Alas, along with his huge OBBBA, Trump has been the president before him for at least the last 50 years. He’s heading down the road and kicking the can. But the current challenge is that roads are rapidly approaching their end.
Recent reactions to dollars, gold and interest rates reveal this.
Just grow your path
There is always a fantasy that allows Washington to get out of debt. This reduces the debt-GDP ratio, as GDP grows faster than debt growth. This sounds logical and practical. But after decades of attempts, it proved impossible.
For example, in 1981, the total US debt was almost 30.6% GDP. Today it exceeds 121%. So, rather than breaking out of debt over the past 40 years, the US government has done the exact opposite. It consistently dug deeper holes.
If we cut personal and corporate taxes to expand the economy from debt, it didn’t work in the past, so why does it work now?
To be clear, we all want low taxes. But if lower taxes are not met in the expenditure reductions, we all end up paying them through inflation tax. Specifically, as the dollar loses value due to a permanent deficit, the corresponding price rise serves as a hidden tax on American revenue.
This is after decades of continuous deficits Median American income There will be no cuts of about $40,000 a year.
Clearly, rising marginal tax rates discourage people from working, saving and investing. At the same time, higher debt levels and higher interest rates attract investment in productive activities.
Increased borrowing costs make it more expensive for companies to invest in new projects or expand existing projects. How is manufacturing supposed to return to the American coast if the interest in loans to build a factory consumes all the profits?
It’s totally obbba
Adding government debt and persuasive interest rates will cause growth to stagnate and the growth economy to stagnate. This will result in a higher debt-to-GDP ratio and not lower.
Similarly, tax increases are not the answer. This also limits the economy and limits its ability to grow.
Again, it all comes back to spending cuts. The only honest way out of this confusion is for Congress to balance the budget, eliminate the deficit and begin paying off the debt. Initially, GDP decreases as governments rely on expending the economy to disappear.
But that’s the right thing to do. After a long and painful adjustment, the economy and government finances become structurally sound. However, the total level of corruption on Capitol Hill cannot achieve this entirely.
The 435 members of the House and 100 senators are found in investors in their own special interests and campaigns, respectively. There are defence contracts to do good things. Highway expansion. Regeneration project. Hardening of the electric grid. Funding for the local park. Big pharmaceuticals. Big technology. Free lunch. And everything that is caught between welfare and a state of war.
Some are out of control for Social Security and Medicare. These programs have all paid for our entire working life, but they are bankrupting the country. But people love them. They don’t want to see them go.
But budget balance will not happen unless social security, Medicare and defense spending are made in significant cuts. And without a balanced budget, debt will continue to mushroom like metastatic cancer until it completely destroys the US government’s finances.
Nevertheless, there is no chance of snowman in hell. Congress does the right thing. They will all be fully OBBBA as the spending bill passes through the Senate. More lard is added than you took out. You can count on it.
Members of Congress want to get everything as much as possible theirs as possible, like their special interests and constituents. Each of them operates with the expectation that their minds will leave their bodies before the ultimate calculation. In the case of aging mist in America, the perfect Obbba is working perfectly.
For the rest of us, we will be left to understand it.
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From the heart,
Mn Gordon
For economic prism
Going to a complete OBBBA will return to the economic prism
