- - Wednesday, May 3, 2017

ANALYSIS/OPINION:

Watching Congress and President Trump tussle over taxes, health care and simply funding the government for the balance of the fiscal year, it becomes painfully apparent they have no intention of tackling the real budget and growth problems the nation faces over the next decade — at least not until they are confronted with a crisis.

Thanks to an aging population, the proclivity of Presidents Clinton, Bush and Obama to answer populist demands with ever bigger benefit programs and 2 percent growth as the new normal, budget deficits will rise dramatically over the next decade if current laws are not changed. Entitlements and interest payments on the national debt will consume virtually all federal tax revenue by 2027.

Washington would have to borrow just to keep the lights on in federal agencies and the fleet sailing.

More importantly, the federal government is not borrowing money from what Americans save — we simply don’t save much. Rather, it’s selling Treasury securities to foreign governments, while ordinary Americans sell real estate and business assets to foreign investors.

Figuring the net of what Americans owe abroad, Uncle Sam and our children have about $8.5 trillion in IOUs out to the rest of the world. That’s 45 percent of gross domestic product and that indebtedness should easily surpass 60 percent by 2027.

No nation has seen its indebtedness reach that level without a reversal of its trade deficit, and this has often been accompanied by a severe financial crisis — for example, foreigners dumping its debt, painful deflation or the kind of pain most recently endured by Greece, Spain and other profligate nations.

Washington swamp rats continue to demagogue the issue.

Democrats and liberal pundits advocate reforms that are really damaging tax increases — such as removing the $127,200 income cap on Social Security payroll levies or reforming corporate taxes to raise substantially more revenue.

They tell us most big companies don’t pay the top 35 rate on profits — thanks to generous loopholes they helped put into the law. However, the effective corporate tax American companies actually pay is substantially greater than effective rates levied by most other industrialized nations.

Unfortunately, raising taxes on labor or capital will only slow hiring and make federal finances worse. Indeed, President Obama’s recent tax increases on the wealthy and to fund the Affordable Care Act have delivered one of the most anemic economic expansions in modern history, and our present deficit and debt dilemmas.

The Trump administration is no better. It proposes to solve our problems by slashing individual and corporate rates in a manner that will magically boost long-term growth to 3 percent and harvest a bounty of new revenue.

As a trained economist, I can tell you there is no credible economic model that demonstrates Mr. Trump’s vague tax proposals, even fleshed out in the most pro-growth manner, could accomplish that feat. If the White House has such a model, I welcome its publication and professional review.

And the daily dysfunction gets worse.

In negotiations to keep the government funded through the end of the fiscal year, the White House won more money for the military and border security, and the Democrats got an additional $30 billion for Pell Grants, mass transit and other domestic priorities. Such gradual erosions of fiscal discipline bring the crisis of 2027 closer.

If we don’t wait to act, solutions are within our grasp. Examples are entitlement reforms such as denying Medicaid benefits to adults who refuse to work, and corporate tax reforms such as House Ways and Means Committee Chairman Kevin Brady’s plan to boost growth by financing a top corporate rate of 20 percent by closing plenty of loopholes and taxing imports just as our competitors do.

Addressing the trade deficit would do a lot for growth, too, by increasing the demand for U.S.-made goods and boosting corporate research-and-development spending, but targeting Canada and Mexico is hardly the answer when China accounts for more than 60 percent of the trade gap and is the planet’s most unfair trader. Similarly, immigration reform to attract skilled workers in areas where businesses face shortages would also aid export-led growth.

For now, it seems the administration and Congress are inclined to pander to voters and their big-business buddies rather than level with us about the hard choices the nation confronts.

• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.

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