Claim: Joe Biden said Sunday night that the Trump tax cuts of 2017 and Fed rate cuts of 2019 have left the U.S. unable to afford measures needed to stabilize the American economy during the coronavirus crisis.
“The problem is the policies of this administration. Economically have we eaten a lot of our seed corn here,” Biden said during the Democrat presidential debate. “The ability of us to use leverages that were available before have been used up by this god-awful tax cut of $1.9 trillion and the fact that we have used, the fed will be of little consequence now. They’ve already used what leverage they have.”
Verdict: False. Long-term interest rates are at all time lows, implying a robust appetite for the federal government’s Treasury bonds. And inflation is currently running below the Fed’s target, indicating that deficit spending is not creating a supply shortage that would push up prices.
In short, there is no evidence that the U.S. is fiscally constrained by current borrowing or past deficits. Our seed corn is still right there for us to use as we need it.
It is possible that the federal government’s fiscal deficits are higher than they would have been without the tax cuts, although that is unclear since we do not know if the economy would have grown by as much absent the tax cuts. Tax cuts arguably boosted economic growth higher than it would have been in an era in which the Fed was hiking interest rates, import tariffs were rising, and the trade war with China was dampening economic growth around the globe.
What’s more, even economists who have concluded the cuts added to the deficit find that the tax cuts only account for around half of the additional borrowing. The other half is due to rising spending.
Joe Weisenthal, the Bloomberg T.V. anchor, recently tweeted that interest rates prove there is no fiscal problem created by the higher deficits.
And again, even though Trump’s tax cuts blew out the deficit, there is no fiscal constraint. None. Just look at interest rates on treasuries, or inflation. So none of that matters. It’s not the time to be tsk-tsking past fiscal decisions. Totally irrelevant to the crisis at hand.
— Joe Weisenthal (@TheStalwart) March 10, 2020