What, Me Worry?
On February 12, 2018, I published on Penserra’s website (the company I work for) a two-page thought piece regarding potential effects higher interest rates can have on the Federal Budget. What follows is an introductory paragraph from the piece followed by a link to the site should you want to read more.
Cheers,
Lee Geiger, The Marginal Prophet
On January 31, the Congressional Budget Office said the United States was expected to bump up against its borrowing limit earlier than previously expected, a function of last year’s $1.5 trillion tax cut, which is resulting in less revenue for the Treasury Department. As a consequence, in the pre-dawn hours of February 9, Congress acknowledged that warning by passing a budget bill that included a suspension of the federal debt limit until March 2019. Suspended, as in no limit whatsoever. Congress, for all practical purposes, just issued itself a black American Express card.
Now consider this. The Reagan tax cuts of 1981 took place with federal debt as a percentage of GDP at 31%. The Bush tax cuts of 2001 were at 54%. Then there’s the Trump tax cut, passed into law with federal debt escalating to 104% of GDP1. Do you see a pattern here? The desire to cut taxes is wired into a Republican’s DNA, and hell hath no fury like a Republican president who actually raises taxes. Just ask George Bush #41.