Photo: Unsplash/Rick Tap
The U.S. is now controlled by a Republican House, Senate and President. With this control comes opportunities to make a significant impact on America’s future. With the financial crisis only a decade ago—and a slow economic recovery afterward—it’s important to see how Trump’s actions with a Republican-backed federal government can affect our financial future.
A brief excerpt from the Republican Platform 2016 guide describes the Republican Party’s position on economic issues:
“We are a party of a growing economy that gives everyone a chance in life, an opportunity to learn, work, and realize the prosperity freedom makes possible. Government cannot create prosperity, though government can limit or destroy it.”
From an idealistic standpoint, this message seems to invoke hope and opportunity for all to achieve the “American Dream.” But how does this message translate into reality when you consider Trump’s economic solutions, and how does it impact the American people?
Donald Trump’s tax plan is focused on lower taxes. He and the GOP believe that lower taxes will spur economic growth and create more job opportunities. This sounds great in theory, but we have to look at how taxes affect our economy in a real-world context.
Republican tax strategy has a foundation based on Reaganomics. Reaganomics was developed from the Laffer Curve, which is one of the main theoretical constructs of supply-side economics (colloquially referred to as trickle-down economics).
The general idea is that lower taxes could stimulate the economy and create more jobs. Theoretically, there would be a large enough increase in new jobs—and new taxpayers—to generate more tax revenue than is lost from taxing Americans less. However, in reality, tax cuts—particularly for the wealthiest of Americans—have yet to show consistent results in spurring economic growth.
While lower taxes—fiscal policy—is an easy and enticing concept for most Americans, it is important to look at how monetary policy (e.g., federal funds rate) affects our economic livelihood. The Federal Reserve Board can change the institutional interest rates lower or higher. When rates go up, it is more costly to borrow and consumers and businesses are less likely to take out a loan to make big purchases. When rates go down, it is less expensive to borrow and creates an incentive for consumers and businesses to make big purchases and investments.
Management of the federal funds rate is a key tool to combat inflation (raising rates) and create economic growth (lowering rates). However, the Federal Reserve Board has steadfastly lowered interest rates since the recession of the early 1980s when the Federal Reserve had rates at nearly 20% to combat serious inflation problems.
After our 2008 financial crisis, the Federal Reserve pretty much lowered the interest rate to 0% from 2009-2015, which has only been increased slightly in 2016 (less than 1%). This means that rates will go up in the future. When interests rates rise, consumers feel the effects through increases to credit card and mortgage interests rates—essentially, bills go up and people have less disposable income to spend.
Stimulating our economy is going to be a challenge, and lower taxes alone will not solve the problem. However, fiscal policy—taxation in conjunction with government spending—has a significant impact on our national debt.
The national debt is a major issue when it comes to our livelihood in the United States. The idea of reducing the national debt is a valid point and should be an objective for any administration. However, it is important to evaluate how Trump’s fiscal policy will help us solve our $20 trillion national debt problem. Looking at recent history, we can better understand the U.S. national debt situation.
Inherited National Debt: $11.7 trillion
National Debt When Leaving Office: $19.6 trillion
The Obama Administration added $7.9 trillion in debt, a 68% increase from the previous administration’s debt level.
Inherited National Debt: $5.8 trillion
National Debt When Leaving Office: $11.7 trillion
The Bush Administration added $5.9 trillion in debt, a 101% increase from the previous administration’s debt level.
Inherited National Debt: $4.4 trillion
National Debt When Leaving Office: $5.8 trillion
The Clinton Administration added $1.4 trillion in debt, a 32% increase from the previous administration’s debt level.
Inherited National Debt: $2.8 trillion
National Debt When Leaving Office: $4.4 trillion
The Bush Administration added $1.6 trillion in debt, a 54% increase from the previous administration’s debt level.
Inherited National Debt: $1 trillion
National Debt When Leaving Office: $2.8 trillion
The Reagan Administration added $1.8 trillion in debt, a 186% increase from the previous administration’s debt level.
Inherited National Debt: $700 billion
National Debt When Leaving Office: $1 trillion
Added $300 billion in debt, a 43% increase in debt from the previous administration’s debt level.
Our national debt has skyrocketed since the Reagan Administration. The national debt is created when we spend more than we generate through taxes. With nearly 50% of U.S. government revenue generated through individual income taxes and 30% through payroll taxes, major cuts will have a direct effect on our ability to combat national debt.
Source: http://www.taxpolicycenter.org/
While lowering taxes may contribute to the national debt since tax revenue declines, at least in the short-term future, the other contributor to the national debt is government spending. If we look at a recent breakdown of our federal spending (2015), a vast majority of spending—76%—is in three categories:
In order to lower our national debt, we must either increase our available funds (i.e., taxes) or lower spending. As a result, Trump’s administration is pushing tax cuts and pledging to significantly cut government spending.
However, even with major cuts to the departments of Commerce, Energy, Transportation, Justice, State, etc.—or the elimination of programs such as the National Endowment for the Arts—they do not significantly contribute to our national debt.
While Trump has stated that he will not go after entitlement programs such as Social Security and Medicare, it may not be out of the question in the future. Especially with Trump’s nominee for director of the Office of Management and Budget, Rep. Mick Mulvaney, who is regarded as an extreme anti-deficit crusader that supports cuts to these entitlement programs.
Trump and the Republican Party believe in the freedom of financial markets and a more “laissez-faire” approach. The 2016 Republic Party guide states:
“[I]n response to the financial institutions crisis of 2008-2009, the Democratic-controlled Congress enacted the Wall Street Reform and Consumer Protection Act, otherwise known as Dodd-Frank. They did not let the crisis go to waste but used it as an excuse to establish unprecedented government control over the nation’s financial markets. The consequences have been bad for everyone except federal regulators.”
President Trump has echoed this sentiment by signing an executive order to roll back the Dodd-Frank regulation enacted to protect consumers. Moreover, Trump is appointing Wall Street elites to positions of power, including:
Historically speaking, financial regulations help maintain order and protect the American people. After the Great Depression, when thousands of banks failed and many Americans lost everything, the Glass-Steagall Act (1933) was enacted to safeguard the American people.
The main provisions separated commercial banking and investment banking in order to limit risky practices that could lead to bank failures and consumer losses. It also created the FDIC, which insures bank deposits to help with consumer confidence. However, in 1999, the Gramm-Leach-Bliley Act repealed the restrictions on commercial and investment banking put in place by Glass-Steagall. Less than a decade later we experienced the largest economic crisis since the Great Depression.
While I believe in capitalism and creating incentives for people to invest and start companies that drive economic growth and success, history has shown us that unchecked control leads to greed and unprecedented power for a select few—usually at the expense of the American people. We should be wary of any acts to deregulate our financial system, especially so soon after a major crisis.
It is too soon to tell what our financial future holds, but I am wary of where we are headed. From Trump’s tax plan, national deficit actions and deregulation of our financial system, to his conflicts of interest, we may be in for a rocky ride where our government and Wall Street are looking out for themselves and not the American people.
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The U.S. is now controlled by a Republican House, Senate and President. With this control comes opportunities to make a significant impact on America’s future. With the financial crisis only a decade ago—and a slow economic recovery afterward—it’s important to see how Trump’s actions with a Republican-backed federal government can affect our financial future.
A brief excerpt from the Republican Platform 2016 guide describes the Republican Party’s position on economic issues:
“We are a party of a growing economy that gives everyone a chance in life, an opportunity to learn, work, and realize the prosperity freedom makes possible. Government cannot create prosperity, though government can limit or destroy it.”
From an idealistic standpoint, this message seems to invoke hope and opportunity for all to achieve the “American Dream.” But how does this message translate into reality when you consider Trump’s economic solutions, and how does it impact the American people?
Donald Trump’s tax plan is focused on lower taxes. He and the GOP believe that lower taxes will spur economic growth and create more job opportunities. This sounds great in theory, but we have to look at how taxes affect our economy in a real-world context.
Republican tax strategy has a foundation based on Reaganomics. Reaganomics was developed from the Laffer Curve, which is one of the main theoretical constructs of supply-side economics (colloquially referred to as trickle-down economics).
The general idea is that lower taxes could stimulate the economy and create more jobs. Theoretically, there would be a large enough increase in new jobs—and new taxpayers—to generate more tax revenue than is lost from taxing Americans less. However, in reality, tax cuts—particularly for the wealthiest of Americans—have yet to show consistent results in spurring economic growth.
While lower taxes—fiscal policy—is an easy and enticing concept for most Americans, it is important to look at how monetary policy (e.g., federal funds rate) affects our economic livelihood. The Federal Reserve Board can change the institutional interest rates lower or higher. When rates go up, it is more costly to borrow and consumers and businesses are less likely to take out a loan to make big purchases. When rates go down, it is less expensive to borrow and creates an incentive for consumers and businesses to make big purchases and investments.
Management of the federal funds rate is a key tool to combat inflation (raising rates) and create economic growth (lowering rates). However, the Federal Reserve Board has steadfastly lowered interest rates since the recession of the early 1980s when the Federal Reserve had rates at nearly 20% to combat serious inflation problems.
After our 2008 financial crisis, the Federal Reserve pretty much lowered the interest rate to 0% from 2009-2015, which has only been increased slightly in 2016 (less than 1%). This means that rates will go up in the future. When interests rates rise, consumers feel the effects through increases to credit card and mortgage interests rates—essentially, bills go up and people have less disposable income to spend.
Stimulating our economy is going to be a challenge, and lower taxes alone will not solve the problem. However, fiscal policy—taxation in conjunction with government spending—has a significant impact on our national debt.
The national debt is a major issue when it comes to our livelihood in the United States. The idea of reducing the national debt is a valid point and should be an objective for any administration. However, it is important to evaluate how Trump’s fiscal policy will help us solve our $20 trillion national debt problem. Looking at recent history, we can better understand the U.S. national debt situation.
Inherited National Debt: $11.7 trillion
National Debt When Leaving Office: $19.6 trillion
The Obama Administration added $7.9 trillion in debt, a 68% increase from the previous administration’s debt level.
Inherited National Debt: $5.8 trillion
National Debt When Leaving Office: $11.7 trillion
The Bush Administration added $5.9 trillion in debt, a 101% increase from the previous administration’s debt level.
Inherited National Debt: $4.4 trillion
National Debt When Leaving Office: $5.8 trillion
The Clinton Administration added $1.4 trillion in debt, a 32% increase from the previous administration’s debt level.
Inherited National Debt: $2.8 trillion
National Debt When Leaving Office: $4.4 trillion
The Bush Administration added $1.6 trillion in debt, a 54% increase from the previous administration’s debt level.
Inherited National Debt: $1 trillion
National Debt When Leaving Office: $2.8 trillion
The Reagan Administration added $1.8 trillion in debt, a 186% increase from the previous administration’s debt level.
Inherited National Debt: $700 billion
National Debt When Leaving Office: $1 trillion
Added $300 billion in debt, a 43% increase in debt from the previous administration’s debt level.
Our national debt has skyrocketed since the Reagan Administration. The national debt is created when we spend more than we generate through taxes. With nearly 50% of U.S. government revenue generated through individual income taxes and 30% through payroll taxes, major cuts will have a direct effect on our ability to combat national debt.
Source: http://www.taxpolicycenter.org/
While lowering taxes may contribute to the national debt since tax revenue declines, at least in the short-term future, the other contributor to the national debt is government spending. If we look at a recent breakdown of our federal spending (2015), a vast majority of spending—76%—is in three categories:
In order to lower our national debt, we must either increase our available funds (i.e., taxes) or lower spending. As a result, Trump’s administration is pushing tax cuts and pledging to significantly cut government spending.
However, even with major cuts to the departments of Commerce, Energy, Transportation, Justice, State, etc.—or the elimination of programs such as the National Endowment for the Arts—they do not significantly contribute to our national debt.
While Trump has stated that he will not go after entitlement programs such as Social Security and Medicare, it may not be out of the question in the future. Especially with Trump’s nominee for director of the Office of Management and Budget, Rep. Mick Mulvaney, who is regarded as an extreme anti-deficit crusader that supports cuts to these entitlement programs.
Trump and the Republican Party believe in the freedom of financial markets and a more “laissez-faire” approach. The 2016 Republic Party guide states:
“[I]n response to the financial institutions crisis of 2008-2009, the Democratic-controlled Congress enacted the Wall Street Reform and Consumer Protection Act, otherwise known as Dodd-Frank. They did not let the crisis go to waste but used it as an excuse to establish unprecedented government control over the nation’s financial markets. The consequences have been bad for everyone except federal regulators.”
President Trump has echoed this sentiment by signing an executive order to roll back the Dodd-Frank regulation enacted to protect consumers. Moreover, Trump is appointing Wall Street elites to positions of power, including:
Historically speaking, financial regulations help maintain order and protect the American people. After the Great Depression, when thousands of banks failed and many Americans lost everything, the Glass-Steagall Act (1933) was enacted to safeguard the American people.
The main provisions separated commercial banking and investment banking in order to limit risky practices that could lead to bank failures and consumer losses. It also created the FDIC, which insures bank deposits to help with consumer confidence. However, in 1999, the Gramm-Leach-Bliley Act repealed the restrictions on commercial and investment banking put in place by Glass-Steagall. Less than a decade later we experienced the largest economic crisis since the Great Depression.
While I believe in capitalism and creating incentives for people to invest and start companies that drive economic growth and success, history has shown us that unchecked control leads to greed and unprecedented power for a select few—usually at the expense of the American people. We should be wary of any acts to deregulate our financial system, especially so soon after a major crisis.
It is too soon to tell what our financial future holds, but I am wary of where we are headed. From Trump’s tax plan, national deficit actions and deregulation of our financial system, to his conflicts of interest, we may be in for a rocky ride where our government and Wall Street are looking out for themselves and not the American people.
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