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Trump Policy Rooted in Debt
Trump Policy Rooted in Debt

Trump Policy Rooted in Debt

Trump Policy Rooted in Debt

President Donald Trump sent Congress a $4.4 trillion budget proposal on Monday outlining steep cuts to domestic programs, large increases in military spending and a ballooning federal deficit that illustrates how far Republicans have strayed from their longtime embrace of balanced budgets.
Trump’s budget statement calls deficits the harbingers of a “desolate” future, but the White House plan would add $7 trillion to the deficit over the next 10 years, news outlets reported.
One clear principle runs through Trump’s emerging economic policy: Debt is good. When defending a tax plan or laying out his budget, the man who once called himself “the king of debt” is trying to persuade Americans there’s no price to pay for running trillion dollar budget deficits over the next few years. 
Stronger economic growth will permanently follow the borrowing spree, officials argue, even as many economists and investors already warn about what could happen when the debt becomes due.
The White House budget plan is the latest example of the Trump principle. The budget proposal not only envisions soaring deficits through 2020, but also outlines an infrastructure plan that would encourage state and local government to borrow heavily. 
The plan amounts to a gamble that nothing can slow a high-flying US economy and force a reckoning over the debt. Not higher interest rates. Not rising inflation. Not a foreign crisis. Not an aging US population. Not even—based on the budget plan’s own estimates—an increase in the unemployment rate. Should the economy stumble, the risk is that the gravitational pull of the debt would worsen as the government would likely borrow more to stop a downturn, CNBC reported.
“They’re assuming that the expansion lasts forever, basically,” said Jim O’Sullivan, chief US economist at High Frequency Economics. “You have to ask what will ultimately happen when we do go into a recession.”
O’Sullivan expects that ratings agencies could downgrade the US government’s credit rating. He cites the $1.5 trillion higher debt after Trump signed tax cuts into law last year and the bipartisan deal reached last week to fund the government through 2019, which puts the US on track to hit trillion-dollar deficits next year.

  Anything But Debt Averse
Trump’s willingness to embrace debt is in direct contradiction to years of Republican rhetoric on the dangers of deficits and breaks his campaign promises. As a candidate, Trump vowed not just to balance the budget but pay down the entire national debt, which is currently $20.5 trillion.
But as a businessman, Trump was anything but debt averse. Several of his companies filed for bankruptcy protection after being unable to service debt, leaving investors and contractors with losses. Trump portrayed this experience during the campaign as proof of his financial shrewdness.
“I’m the king of debt. I’m great with debt. Nobody knows debt better than me,” he told CBS News in 2016, adding if he was unable to fully honor any obligations he would tell investors that “the economy just crashed” and renegotiate the terms. But Trump has cautioned that he likes debt for his companies but not the country, saying that the government was “sitting on a time bomb” with its yearly deficits.
For now, the Trump administration is saying that the US economic landscape has been overhauled over the past year. With the passage of the tax cuts, the economy is now set for a long-term acceleration, rather than a quick gain followed by a slowdown.
But investors are unconvinced. They’re already starting to charge the government higher interest rates in anticipation of rising deficits. The yield on the 10-year US Treasury climbed as high as 2.89% on Monday, up from a recent low of 2.06% in September. Many forecasters assume that any economic upswing is temporary, but the Trump budget sees no end in sight.

  Assault on Medicare 
Trump’s budget overlaps with the mass retirement of baby boomers, whose use of programs such as Medicare and Social Security will likely cause government expenditures and the debt to keep increasing. Indeed, the government is borrowing more at a moment when unemployment is already at a 17-year low of 4.1%, a time when many economists say it should be repairing its balance sheet by borrowing less.
Even before the tax cuts and two-year spending deal, the Congressional Budget Office estimated that publicly held debt would equal more than 90% of the US economy in 2027. The Trump budget assumes savings that would put the debt at less than 75% of the economy.
Trump achieves some of his debt savings by slashing Medicare by $554 billion over the next decade among other substantial cuts to programs at the Labor Department, the Environmental Protection Agency and elsewhere. But he also assumes that the entire economy will be $3.1 trillion bigger than previously forecast because of his policies.
Independent experts said the administration’s plan will help beneficiaries with the highest prescription drug costs, an estimated one million of the sickest patients, those whose individual bills reach a total of more than $8,418 apiece.
But about 4.5 million seniors in the group just behind them could end up spending more of their own money. That’s because the budget proposes a change in how Medicare accounts for manufacturer discounts received by patients whose total bills range between $3,750 and $8,418. They could wind up paying about $1,000 more.
State budgets are already being squeezed as costs for education and programs such as Medicaid are rising faster than tax revenues, said Gabriel Petek, a managing director at Standard & Poor’s Global Ratings.

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