FISCAL IRRESPONSIBILITY is the hallmark of populist governance. Whether ideologically left-wing (Hugo Ch¨¢vez in Venezuela), right-wing (Juan Per¨®n of Argentina) or in between, populists promise prosperity, dismiss trade-offs as so much elitist naysaying and spend their nations¡¯ savings to make it happen ¡ª at least temporarily. The hangover, economic and political, is always painful.
President Trump¡¯s fiscal record so far is very much in the reckless spirit of such erstwhile Latin American strongmen, even if the United States¡¯ incomparable advantages ¡ª including the power to issue the world¡¯s reserve currency ¡ª may help avoid the kind of calamitous long-term consequences the dictators¡¯ countries faced. Still, no nation can defy the laws of fiscal gravity forever; and the president¡¯s own budget plan for fiscal 2019, issued Monday, demonstrates how the margin for financial error is rapidly diminishing.
Thanks to policies pursued by Mr. Trump and the Republican Congress ¡ª a massive tax cut, followed last week by legislation to increase federal spending by about $300 billion over the next two years ¡ª it has become impossible for the president to forecast a balanced budget by 2027, as he did last year. Instead, it is projected the deficit would still equal more than 1 percent of total economic output in that year, having swollen well above 4 percent in each year of Mr. Trump¡¯s first term. Even those numbers are wildly optimistic, because his budget proposal assumes, unrealistically, that economic output will expand at about a 2.9 percent annual rate over the next decade and that Congress will reduce non-defense discretionary spending 40 percent in the same period, with programs for low-income people bearing most of the cuts.
This is the handiwork of a president and a political party that excoriated President Barack Obama for trillion-dollar annual deficits in his first term. Yet that red ink flowed for a reason: An epic collapse in economic growth dried up tax receipts while forcing Washington to spend more on unemployment benefits, job-creation schemes and other recession-fighting programs. Deficits declined as the economy improved. Now, with the economy running at or near full employment, a prudent government would stop priming the pump with tax cuts and spending increases and begin adopting long-term fixes to entitlement programs that drive long-term debt. Every dollar Mr. Trump adds to the debt amid today¡¯s prosperity makes it that much more difficult for a future government to respond to future recessions, wars or natural disasters.
To be sure, some elements of Mr. Trump¡¯s tax plan represent needed reform over the current system; equally true, defense needed more money, which the recent budget deal provided, while avoiding a government shutdown. And Democrats joined in the bipartisan spending spree. Taken as a whole, however, what we have is the antithesis of functional government, if functional government is defined as the establishment of clear public priorities, combined with reasonable measures to fund them. What we have is populism.
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