Again…he fires off some bold claims, media goes bat shit – but what are the meat and potatoes behind it? Can it be done? What ideas do him and his people promote to do this?
I just heard CNN’s Christine Romans talk about “in order to do this, you have to cut the budget in half from $4 trillion to $2 trillion”. That makes sense. $2 trillion a year for 8 years is $16 trillion which is an approximation to $19 trillion. But he gets laughs and snickers. However, this is the same reason people are interested in him. Every other candidate talks about “reducing deficits”. Let’s look at….how could it work?
Yes – one way to do this is to cut expenses in half from $3.7 trillion to $1.7 trillion to create a $2 trillion surplus. Currently, CNN is reporting 5.0% unemployment rate, 37% not working, and 9.8% underemployed. These numbers are somewhat sketchy….
1) Some people are counted as “leaving the workforce” after not being able to find work after one year.
2) How many people with college degrees might be working at Starbucks at the moment?
3) How many people WANT to work 40 hours, but might be cut to 27 hours so the company doesn’t have to give them health insurance?
4) How many people are on disability who might actually be able to work? For example, if you have a bum knee, can you talk on the phone?
5) How many people are making $50,000 today who made $50,000 10 years ago? Wages have been stagnant.
Some things Trump has said which might give some clues as to the “how”…
First, let’s examine what we spend money on. Here’s a good chart…
Second, let’s look at the math above. We are assuming $3.7 trillion income is the high. What if $4.7 trillion was the high? This means our budget would be $2.7 trillion to create the $2 trillion surplus. Meaning, we would have to both increase revenues and decrease expenses. This is what companies try to do.
Second, what if we stop borrowing to stop creating new debt? As we are paying down principal of loans, our $250 billion or so interest we pay on these loans per year grows less and less. So, as years 1-8 go on, this $250 evaporates.
What Trump has said which might help create this $2 trillion surplus:
1) 5 tax brackets and simplify taxes. Currently, taxes are in a 72,000 page tax code. If you simplify taxes, you might eliminate the need for 95% of the IRS. Second, he is eliminating taxes for the poorest fifth. Today, they probably don’t pay much taxes, but they also get refunds from things like child tax credits while not actually paying into the system. He claims the rich will pay more. He claims to want to reduce business taxes. By doing all of the above, it’s possible this could add $250 billion to the “plus” column every year.
2) Corporate inversions and taxes/tariffs. He talks about wanting to bring companies back. We have the highest tax rate for corporations in the world. When these companies move factories overseas, it is killing us with jobs and all of that potential income taxes/sales taxes these people would contribute. It makes sense to have lower corporate tax rates, and it also makes sense to start getting into better trade deals so we don’t have a $500 billion trade surplus to China. My guess is, over a span of several years (in a perfect world), this could add $250 billion to the coffers each year, perhaps an upward of $300 billion.
3) Illegal immigration issues. In many outlets, you can see that it is estimated that it costs us about $113 billion per year for illegal immigration in this country. This is in costs with people with no insurance getting medical care, school children of illegals who are not paying taxes, police services, prison populations, crime. I read a report which had 25,000 illegals committing murder in this country over a 7 year span, with 67,000 sexual assault violations. While the desire is to reduce our costs and “make America great again”, it is obvious you can’t deport 11 million illegal immigrants. The wall is estimated to cost between $10-$40 billion over 25 years. So, if we can stop illegals from coming in, and we can deport the “criminals” among the good, decent, hardworking illegals – and perhaps get them into the tax system to add revenues, perhaps we not only reduce this $113 billion cost, but perhaps we add tax revenues from 10.5 million people. Perhaps we tax money leaving this country that illegals send back to Cuba, Mexico, wherever. Perhaps the net result of these actions are a $60 billion reduction in cost and $40 billion revenues, which then gives us a surplus of $100 billion.
4) Defense. Trump has stipulated that he wants us to stop being the world’s police because of the high costs. We have 50,000 troops in South Korea today. We have troops at bases all over the world. Part of this is to ensure our investments are not seized by a local government, but a lot of this is protection. We put 50,000 troops in South Korea and we foot the bill for this. Trump has talked about “nukes” in places like South Korea and Japan. I’m not sure he was talking about letting them develop nukes, but it wouldn’t seem unreasonable for us to take a few of our missiles we have and place them there, manned by perhaps 500-1000 of our troops and perhaps 3,000-5,000 South Koreans. We have the launch codes only. This could be a further deterrent for Kim Jung Un, but without the need for us to spend billions per year to have this footprint everywhere. He also talked about “charging them”. Just for 50,000 troops alone you’re looking at $200 million per month in salary, medical care, food, and shelter before you start talking about tanks, planes, fuel. It’s possible just S Korea alone is costing us $5 billion per year. How much would it cost to have a few thousand men and 5 nukes? My guess is we can draw back our footprint and increase the quality of equipment they have – while reducing disaster contracts like the F35. My guess is that he could shave $200 billion off of defense and still keep us strong. Our defense budget is larger than the next 26 nations, combined, and 25 of them are our allies. He’s also talking about us contributing less money to NATO. My guess is, he’s being a prudent keeper of our wallet, trying to get the best bang for the buck and trying to shake some money from the couch cushions.
5) Obamacare – he said he wants to repeal this and make something better. I don’t know what that is, but we already had Medicare/Medicaid setup which we could have expanded. One thing he specifically said is if he wants to alter Obamacare, it would be to allow all companies to compete and get rid of these state exchanges where only a few companies can compete in each one, and the process is a mess to try and get more companies added. He wants to open competition up for all at a national level to provide better choice and drive down costs. My guess is it might also be harder to sue in the new world, which could help reduce liability insurance and healthcare costs. Additionally, he said he wanted to open up competition for drugs, where Americans might pay $100 for drugs here from a drug company, which then in turn sells it in another nation for $4. We aren’t allowed to buy Canadian drugs, as if they were some back alley drugs bought in Tijuana. If we can reduce costs to providers and consumers, we might be able to find another $150 billion to add to the surplus.
All of these measures above result in roughly $1 trillion in surplus, and that’s not counting social security or other measures he hasn’t even discussed yet.
Can $2 trillion be reached? I’m not so sure, but I applaud the efforts to try and reduce our costs while maximizing our income without adding a tax burden to the middle and lower classes.