OPINION:
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Former President Donald Trump’s legal woes, President Biden’s age and their colorful campaign rhetoric can easily distract voters from the nation’s tough challenges.
Those boil down to taxes, the new Cold War and immigration, and the public deserves honest presidential debates on these.
The nation’s finances are radically more troubled than when either Mr. Biden or Mr. Trump took office. In 2016, just before Mr. Trump’s Tax Cuts and Jobs Act, or TCJA, the federal deficit was 3.1% of gross domestic product. Just before COVID-19, it was 4.6%, and in 2025, the Congressional Budget optimistically projects it will reach 6.1%.
Interest payments on the national debt will soon exceed nominal annual growth in GDP, exposing the unsustainability of federal finances no matter how lenient capital markets may be.
Fiscal 2025 will likely begin under a continuing resolution. That will likely limit nondefense discretionary spending to virtually no increase over 2024 and defense spending to a 3% boost.
The latter is hardly enough to address the challenges posed by China’s military buildup in the Pacific and the threats posed by Iran and Russia in the Middle East and Europe.
Most of the personal income tax cuts in the TCJA will lapse at the end of 2025. Permitting this would temporarily lower the federal deficit, but the shortfall as a share of GDP would rise again with an aging population, surging Social Security and Medicare payments, and long-term economic growth stuck around 2%.
Progressives would like to boost the corporate tax rate. The TJCA, however, puts U.S. business taxes only on a par with those of our European competitors, and TCJA business tax cuts increased investment and growth.
Taxing billionaires more heavily is the stuff of demagoguery. Like big corporations, they can take their incomes offshore.
With the Affordable Care Act, the child and earned income tax credits, food stamps and so forth, Congress has gradually established a social safety net similar to what Europeans enjoy.
Those entitlements are about 43% of federal outlays. Social Security, defense and nondefense discretionary spending and net interest payments account for 20%, 13%, 14% and 10%, respectively.
Americans don’t pay taxes like Europeans do.
U.S. households below the 50th percentile pay 24% of income in taxes, and those between the 50th and 99.5th percentile pay 28%. In France, comparable figures are about twice as high.
Mr. Trump’s proposed tariffs — 10% across the board and 60% in China — could fund the renewal of the TCJA personal tax cuts but couldn’t also pay for a meaningful increase in defense spending.
It’s questionable whether taxing imports from our allies would help sustain the vital latticework of alliances Mr. Biden is building in the Pacific, Middle East and Europe.
It’s high time for an adult conversation about how much of a safety net we are willing to pay for, what the retirement age should be and how much we are prepared to pay in taxes.
China poses both security and economic challenges. In any budget and tax conversation, we should confront how much we must spend to build our Navy and other forces necessary to secure the South Pacific and our vital source of high-end semiconductors in Taiwan.
China’s subsidized manufactured exports are menacing, but as the electric vehicle industry demonstrates, it is not all about subsidies. The Chinese have superior technology up and down the EV supply chain.
We must ask why, after bailing out General Motors and Ford during the global financial crisis of 2007-2009 and lavishing subsidies through the Inflation Reduction Act, Hyundai and Kia can profitably build and sell EVs, but Detroit can’t.
The CEOs and the United Auto Workers increased their pay with the subsidies, but not their competitiveness.
Similarly, can we sustain a semiconductor industry with such big subsidies as the CHIPS and Science Act provides?
Again, it’s high time for an adult conversation about the regulatory barriers to building factories and the cost disadvantages associated with running those if we ever hope to compete with China.
Finally, sustaining economic growth requires more legal immigrants, not less.
Thanks to declining birthrates and the immigration limits imposed during the Trump administration, the job growth that could be sustained without stoking inflation or illegal immigration would be about 80,000 a month in 2024.
In 2023, with the addition of thousands of illegal immigrants, monthly employment growth was about 250,000.
Admitting more legal immigrants to permit monthly job growth of 200,000 would enable annual GDP growth closer to 3% instead of 2% and greatly ease our budget woes.
We can’t have homeless encampments overwhelming our major cities, but we need a dispassionate conversation about skills-focused immigration reform, housing and assimilation to enable more economic growth.
Increased immigration has been a key component of Mr. Biden’s economic recovery. He should welcome a debate focusing on what we need and how to deal with it.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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