Political Appeal and Innumeracy

U.S. federal spending in 2016 was roughly $4 trillion, and revenues were slightly over $3.4 trillion, leaving a deficit of around $600 billion. Out of total spending, $2.6 trillion was mandatory spending on programs such as Social Security, Medicare, and Medicaid. Spending on these programs cannot be cut without major changes in federal law, and since 77% of all Americans oppose such cuts, it’s highly unlikely that major cuts will occur any time soon. Then add to that some $260 billion in mandatory payments on the federal debt, and essentially 72% of federal spending cannot be effectively cut, at least at present. That leaves $1.1 trillion in discretionary spending, that is, spending that can be increased or decreased by Congress.

Unhappily, the vast majority of Americans have no real understanding of even these basic numbers, especially Fox News viewers, 49% of whom declared in a recent poll that cutting “waste and fraud” would eliminate “the national debt” [which now stands at $14.4 trillion]. A number of polls over the year have shown that most Americans believe that 25% of the federal budget goes to foreign aid [it’s less than one percent], and that five percent of all federal spending goes to PBS and NPR [in fact, roughly a tenth of one percent does].

The real numbers are more daunting. The largest component of discretionary spending is defense, and while the DOD “official” budget is slightly under $600 billion, various contingency funds and defense activities funded in other forms and by other agencies [for example, the Coast Guard is funded by the Treasury Department], brought the total annual cost of U.S. defense much higher, as high as $900 billion, according to some sources, but even assuming $600 billion for defense, that leaves $500 billion for everything else, including agriculture, energy, education, transportation, federal lands management, national parks, environmental protection, veterans benefits, welfare payments, and a whole lot more.

Trump’s proposed tax cut would reduce federal revenues by $500 billion, according to the Tax Foundation, on top of that $600 billion deficit, so even if he could persuade Congress to cut non-defense discretionary spending by 50% — in essence gutting most federal agencies, the deficit would increase to nearly $900 billion, and that doesn’t count the additional spending he’s proposed for infrastructure spending – which initial estimates suggest range from $500 billion to over a trillion dollars, over ten years, or $50 billion to $100 billion a year.

Proponents of the Trump plans claim that all the new investment and jobs will increase tax revenues, and some probably will, but not anywhere close to enough to deal with the federal deficit that increases the national debt – and the interest that must be paid on it – each year.

Based on a 2014 study by Standard & Poor’s, if Congress were to pass a $50 billion a year infrastructure bill, that legislation would create an additional 1.1 million jobs. Construction workers make an average of around $35,000 a year, and, under the best estimate of the Trump tax plan, those million workers would pay around $4,000 in federal income taxes each, thus adding up to an additional $4.5 billion. Economists like to point to the multiplier effect, i.e., how many additional jobs are created by one new job. According to the IMF, under present conditions, the multiplier effect is hovering around one, one additional job created somewhere in the economy for each new job created by investment. So… fifty billion dollars of infrastructure investment might create somewhere over two million jobs and possibly add $10 billion in tax revenues while costing $50 billion. Even if the multiplier effect is five times as much as the IMF says, the infrastructure proposal is at best a break-even proposition, and, as such, might be a good idea. BUT… it won’t do much for reducing the current deficit, let alone the increase in the deficit that will be occurring as a result of more federal spending on defense, and the likely coming increase in interest rates.

The other bottleneck in increasing jobs is the mismatch between available workers and the available jobs. According to research from human resources consultancy Randstad Sourceright, a survey of more than 400 U.S. executives found a skills gap impacting their businesses. Four-fifths of those executives said that a shortage of sufficiently skilled workers will affect their companies in the next 12 months. Complaints of hard-to-fill factory jobs are backed up by Bureau of Labor Statistics data: 324,000 manufacturing spots were open in November, up from 238,000 a year earlier.

Another problem that the Trump approach doesn’t address is that jobs creation isn’t equal. Right now, employees of high-tech companies receive almost 12% of all employee compensation, but there are only seven million of them and the average salary is close to $105,000, more than double the salary of the average industrial or manufacturing employee, or triple that of a construction worker. In addition, the tech industries are only adding about 200,000 employees a year. That doesn’t do much for the nearly 15 million unemployed or underemployed Americans, or the roughly three million college graduates each year. The largest numbers of jobs are in the lower paid service industries, and all the investment money putatively freed up by the tax cuts will be going to tech-heavy companies, and those jobs comprise less than 5% of total U.S. employment.

Massive tax cuts, more defense spending, a major infrastructure initiative… all to be paid for by new jobs and cuts in such federal programs as PBS, NPR, the Endowments for the Arts and Humanities, foreign aid, and the like? The numbers don’t add up, even if the political appeal does, perhaps because most Americans don’t seem to understand the numbers, or care to.

5 thoughts on “Political Appeal and Innumeracy”

  1. Bob Walters says:

    The reason some of those programs can not be cut is that the funding for them come from the FICA and Medicare payroll deductions. That money is not meant to go towards anything else. If anything it should be raised by eliminating or drastically reducing the cap on those collections. As to voodoo economics, it did not work for Bush and it won’t work for 45.

  2. JakeB says:

    I think you’ve got a couple of typos . . . you mention Medicare twice in the first paragraph and I imagine you mean Medicaid for one of them. Also you refer to Standard and Poors — if they’re too poor to have the apostrophe, they’re too poor to have that extra ‘s’, if you’ll allow me a terrible joke.

    Man, if PBS and NPR had 5% of the budget they would have brainwashed everyone! Not a single Trump voter except for those without TVs and radios 🙂 .

  3. Devildog says:

    I would like to see a government that operates more efficiently. There is some savings there. I would like to see the DOD operate more efficiently and focus less on “systems” and more on war fighters. I would like to see a simplified tax code that is straight forward and ‘encourages” businesses to repatriate their cash they have sitting overseas and have it taxed. Most of all, I want to see jobs that people can raise families on and get people off the “dole” because it makes more sense for them to support themselves. Right now, many people see govt. assistance as another mechanism for survival and another source of revenue like a job. I don’t blame them. But here has to be alternatives. If we can bring back low skill jobs that people can use to raise families we will have more tax payers. If we can streamline the corporate tax code, we may get more revenue than we expect (like the Clinton days) and if we make govt more efficient (including the DOD) we might start shrinking the deficit and even taking a bite out the debt. BUT PLEASE, THE ALTERNATIVE OF THE LAST 8 YEARS WHERE THE DEFICIT INCREASED MORE THANY ANY OTHER PRESIDENT COMBINED IS A DISASTER BY ANY MEASUREMENT. Besides, like you said earlier: “Congress has the power of the purse. Presidents can only suggest Budgets. Congress has to pass them.”

    1. Bob Walters says:

      Oh if 45 gets his way and the grifters in congress go along with him, as they appear to be doing, we will see the debt grow exponentially.

    2. The only area where we can economically create low-skill jobs is in the service economy. Technology has made people too expensive for low-skill manufacturing tasks. Even the Chinese are now automating and outsourcing.

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