Economic Growth Is Key To Solving The Nation’s Debt Problem

This is a critical week for the Trump administration. The debate to pass tax reform is in motion, and the Senate will vote on it momentarily.

There are a few Republican outliers who are threatening to vote against the bill. Republicans hold 52 seats in the Senate, and the vice president will settle a tie. Therefore Republicans can only lose two votes for the bill to pass.

The potential no votes are motivated by a few different issues. Most importantly they include the impact of tax reform on the budget and the national debt. Other concerns are an increase in uninsured Americas that will occur if the Obamacare mandate is eliminated, the temporary nature of the middle class tax cuts and a desire to increase tax benefits to small businesses. This essay will examine the budget issue.

Two senators are particularly focused on the cost of tax reform and the implications of this on our nation’s debt. Proponents of the bill say the $1.7 trillion price tag will be mitigated by, among other things, growth in the economy. Supposedly lowering tax rates for middle class Americans along with lowering tax rates for corporations will strengthen our economy. If all this comes to pass, it will increase the amount of taxes collected by the federal government as individual salaries and business profits grow.

Evidence shows that the nation’s economic growth has increased since Trump took office. And Americans are more confident economically. Holiday season retail sales have been very strong.

But will the economy continue to grow rapidly with tax reform and how will this impact interest rates and inflation? No one really knows the answers to these questions, but economic growth will be critical to our nation’s health moving forward assuming any scenario.

Regardless of whether tax reform passes, the only way that the nation’s debt will improve is if tax revenues increase from economic prosperity, tax revenues increase from higher tax rates and/or entitlement reductions.

No politician has the courage to tell the American public that if all things remain the same, Medicare, Medicaid and Welfare will bankrupt the country, so I will say it. It would be political suicide for a candidate to suggest a delay in Medicare payments, conditions for Medicaid or work in exchange for welfare. So, the issue of overspending in these areas will continue to increase at a breathtaking pace.

At some point it is likely that our president and lawmakers will need to cut back entitlements. This will evoke cries of unfairness and even bigotry from the left. The mantra of the left has always centered on the well-being of the lower classes. For decades overspending and growing welfare has not abated. At some point the nation will be unable to meet its obligations without significantly increasing borrowings to dangerous levels.

It is an understatement to say that economic growth is an important element of tax reform. It is critical to our nation in any case. Without more growth in tax revenues our leaders will be forced to resort to Machiavellian actions relating to spending in spite of liberal objections.

The tax reform proposals are not perfect but they will do one thing that is critical to our national financial strength. They will increase economic growth, which will ultimately increase taxes collected by the federal government.

 

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