“Vaccine or no vaccine, we’re back,” President Donald Trump said last week as governors nationwide began relaxing the restrictions prompted by Covid-19. Trump has been the nation’s most ardent advocate for restarting the economy, even as most states have so far failed to meet his own administration’s metrics for a safe reopening. And little wonder: Trump is desperate to regain even a vestige of the pre-pandemic economy’s strength in time for the election this fall.
But for all his cheerleading, Trump is unlikely to get the kind of robust rebound he’s hoping for—in large part due to sabotage inflicted by his own policies. Thanks to his administration’s early and ongoing failures to address the coronavirus outbreak, much of the nation still lacks the testing and contact tracing infrastructure necessary to control the virus’s inevitable resurgence. Mixed messaging from federal and state officials and patchwork guidance from location to location have also heightened the anxiety for Americans, most of whom remain reluctant to leave their homes.
Another handicap will be the fragility of the American economy, brought upon by the Trump’s pre-pandemic fiscal recklessness. When the president assumed office in an emerging recovery from the Great Recession, he had a golden opportunity to shore up the nation’s fiscal reserves and invest in its economic resilience. Instead, he pushed through one of the largest corporate tax cuts in history, padding the bank balances of billionaires while miring the rest of the nation in eye-watering levels of debt. As a consequence, America entered the Covid-19 pandemic already financially crippled. Now, in the face of the greatest economic crisis since the Great Depression, it is ill-positioned to aid its citizens, let alone rebuild for the future.
The 2017 tax bill that Trump signed into law permanently slashed the corporate income tax rate from 35 percent to 21 percent—the largest one-time corporate rate reduction ever—and cut individual tax rates as well. Its projected price tag was a whopping $1.5 trillion over 10 years.
At the time, Republicans touted the measure as a bonanza for job growth and worker wages. Predictably, however, companies didn’t respond to the tax cuts by creating more jobs. Instead, they engaged in a record-breaking number of stock buybacks to pump up share prices, while most of the individual tax breaks benefited the nation’s wealthiest families. Corporations bought up as much as $1 trillion of their own shares, according to a Congressional Research Service (CRS) analysis, while roughly a quarter of the package’s tax benefits were enjoyed by the top one percent of households, according to the Tax Policy Center. Though shareholders and CEOs prospered, few corporations used their windfalls to pay their workers bonuses, despite some highly-publicized pledges to do so.
The only thing the legislation really accomplished was to blow a crater-sized hole in the federal budget, which until then had seen six straight years of declining deficits under President Barack Obama. By 2019, the federal budget deficit had ballooned to nearly $1 trillion, double the level in 2015.
Countries with strong balance sheets have more room to borrow in a crisis and more ability to pump huge infusions of stimulus into their economies. They can worry less about the burden of debt on future generations, and the politics of more spending are less fraught. Trump’s imprudent stewardship, however, has wholly robbed America of that flexibility.
Now, the nation is plunging into an even vaster chasm of debt to finance its recovery. Since the passage of the first tranche of coronavirus relief bills, including the CARES Act, the federal budget deficit is projected to reach a whopping 17.9 percent of GDP this year, according to the Congressional Budget Office (CBO), a level unmatched since World War II. Public debt, meanwhile, will exceed the size of the entire economy, according to the Committee for a Responsible Federal Budget (CRFB).
Debts and deficits of this size will hobble the economy in a number of significant ways. First, interest payments alone, which were already burdensome before the pandemic, will consume a growing share of the nation’s capacity for investment and recovery. As it is, the government spent 8.4 percent of the federal budget ($376 billion) on interest payments in fiscal 2019, the CBO says. It’s an amount roughly equal to the federal government’s contribution to the Medicaid program that year. Post-pandemic, interest on the debt will be an even bigger line-item expense.
America’s shaky fiscal position also puts it at a disadvantage compared to other more prudent nations. That could pose real risks in the post-pandemic global order. Pre-pandemic, government borrowing was a smaller share of the economy in countries like Germany, France, the United Kingdom and China than in the United States, according to International Monetary Fund (IMF) data, In China, for instance, the government’s budget deficit in 2018 was just 4.8 percent of GDP, compared to 80 percent for the United States. Given their stronger financial reserves, these nations will have more ability to invest in their citizens and in their economies than the U.S., putting them first out of the gate toward recovery.
America’s inevitable reliance on more debt will further mean more reliance on the largesse of other nations, such as China, to extend us credit. As much as Trump eschews America’s dependence on China, the country has been a primary financier of his fiscal policies and is the second-largest holder of U.S. public debt (after Japan). Its role as one of America’s biggest creditors will only grow, potentially creating yet another leverage point to China’s advantage in the post-pandemic world.
Perhaps the most tragic consequence of Trump’s profligacy is the squandering of what could have been. True, no one could have predicted the emergence of COVID-19 and the havoc it would wreak on the world. Still, America could have been much better prepared.
Rather than tax cuts for corporations and the very rich, Trump could have pumped more resources into the nation’s workforce development and adjustment programs. That would have been beneficial no matter what, but it would have cushioned the blow of disruption for the more than 36 million Americans now unemployed since mid-March. He could have restored our infrastructure for public health, so that the nation could in fact have “the best testing in the world,” not just his empty boast to that effect. He could also have continued to pay down the national debt and built a rainy-day reserve for crises precisely like the one we’re facing now.
Instead, Trump and his GOP allies in Congress are currently balking at more relief for the millions of Americans who desperately need it. Worse yet, their excuse for a “pause” are the soaring deficits that they themselves created. And because he hasn’t made the kind of investments that could save American lives, Trump is now willing to sacrifice them to restart the economy, resorting to the callous, long-shot strategy of “herd immunity” with its potential for thousands – perhaps even millions – of avoidable deaths.
As badly bungled as his pandemic response has been, Trump’s pre-pandemic policies and priorities will prove equally destructive. The result: Whenever the pandemic ends, America’s convalescence will be long and slow.
