Opinion | Trump’s year of chaos: a massive deficit, immigration politics and the stoking of racism. Where will it end?

Joseph E. Stiglitz says that, in 2018, we saw the fruits of Trumpism: victimisation of immigrants, a US$1 trillion deficit, and prejudice and nationalism unleashed. What will 2019 hold for us?

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Illustration: Timothy Mcevenue. See: www.timothymcevenue.net

Published: 2:02am, 21 Dec 2018Updated: 3:57am, 21 Dec 2018

At the end of 2017, US President Donald Trump’s administration and congressional Republicans rammed through a US$1 trillion cut in corporate taxes, partly offset by tax increases for most Americans in the middle of the income distribution. But, in 2018, the US business community’s jubilation over this handout started giving way to anxiety over Trump and his policies.

A year ago, US business and financial leaders’ unbridled greed allowed them to look past their aversion to large deficits. But they are now seeing that the 2017 tax package was the most regressive and poorly timed tax bill in history. In the most unequal of all advanced economies, millions of struggling American families and future generations are paying for tax cuts for billionaires. The United States has the lowest life expectancy among all advanced economies, and yet the tax bill was designed so that 13 million more of its people will go without health insurance.

As a result of the legislation, the US Department of the Treasury is now forecasting a US$1 trillion deficit for 2018 – the largest single-year non-recessionary peacetime deficit in any country ever. And if that were not bad enough, the promised increase in investment has not materialised. After giving a few pittances to workers, corporations have funnelled most of the money into stock buy-backs and dividends. But this isn’t particularly surprising. Whereas investment benefits from certainty, Trump thrives on chaos.

Moreover, because the tax bill was rushed through, it is filled with mistakes, inconsistencies and special-interest loopholes that were smuggled in when no one was looking. The legislation’s lack of broad popular support all but ensures that much of it will be reversed when the political winds change, and this has not been lost on business owners.

As many of us noted at the time, the tax bill, along with a temporary increase in military spending, was not designed to give a sustained boost to the economy, but rather to provide the equivalent of a short-lived sugar high. Accelerated capital depreciation allows for higher after-tax profits now, but lower after-tax profits later. And because the legislation actually cut back on the deductibility of interest payments, it will ultimately increase the after-tax cost of capital, thus discouraging investment, much of which is financed by debt.

Meanwhile, the US’ massive deficit will have to be financed somehow. Given the country’s low saving rate, most of the money will inevitably come from foreign lenders, which means that the US will be sending large payments abroad to service its debt. A decade from now, total US income will most likely be lower than it would have been without the tax bill.