I read with interest the commentary by Alaska Sen. Dan Sullivan, "Relief for
Alaskans on Tax Day," touting the benefits of the Tax Cut and Jobs Act. I do not disagree with the senator's comments regarding the immediate impact on the average family. But unfortunately, that commentary does not present a complete picture. Specifically, it doesn't fully illustrate the effect that the "historic tax reform" and current federal spending will have on future generations, particularly in 10 years when the individual tax cuts are programmed to expire.
What the senator neglects is that three months after passing the tax act, reducing government revenue, Congress passed a budget that increased spending. This places the proverbial cart before the horse: decreasing income, then increasing expenditures, which inevitably increases debt. The Congressional Budget Office projects that in the next 10 years, the new tax scheme would singlehandedly increase the national debt by more than a trillion dollars. To that, one must add the likelihood that, politics being as they are, federal spending is more likely to remain constant or increase than to substantially decrease.
Add to that the projected increase in the interest rate by the Federal Reserve Bank, which determines interest paid on federal borrowing. Net result: a probable increase in national debt as measured against all three yardsticks. According to data published by the federal government, in the 10 years between 2007 and 2017, the national debt increased from just less than $9 trillion to more than $20 trillion. To put the increase in perspective: (1) As a percentage of annual Gross Domestic Product, the debt grew from 61.8 percent to 105.6 percent; (2) If the debt were divided among U.S. residents, each person's share climbed from $29,756 to $62,230; and (3) As a percentage of median annual household income, the debt grew from 60 percent to 108 percent. During part of that same 10-year span, the Economic Stimulus Act of 2008 reduced taxes from 2008 to 2013. The effect of ESA was a decrease in median household income from $56,076 in 2007 to $55,214 in 2013, rebounding in 2017 to $57,617.
As noted above, in 10 years, the individual tax "relief" provisions expire. What then? Experience has shown that it is human nature to spend according to one's disposable income. Take the average family of four making $73,000 per year, whose after-tax income will drop by a little over $200 per month. Where will that deficit be felt: a rainy day or retirement account; a college savings plan; the family vacation or everyday household/living expenses? It will will hurt somewhere, somehow.
As noted above, 10 years from now, the national debt will more likely be greater than at the end of the last fiscal year. What about the cost of the increased national debt? It took four years after the end of World War II, the only other time national debt exceeded GNP, to get the national debt below GNP. Do tax rates go back to those postwar levels? Do we make cuts to federal spending, which will certainly cause pain to those on the receiving end? Or do we just continue to kick the proverbial can down the road and leave it to our progeny to deal with?
What we'll do then is a question we should all be asking. By the way, don't look to me for definitive answers: As I used to tell my clients, my crystal ball blew a fuse when I first plugged it in and it hasn't worked since.
As an octogenarian (I prefer that term to "old geezer"), the ramifications of the tax bill are unlikely to impact me personally, but they will certainly impact my children, grandchildren, great-grandchildren and their progeny.
Tom Yerbich is a retired bankruptcy and tax attorney in Anchorage.