During an interview with Fox news anchor Martha MacCallum, broadcast this weekend, President Donald Trump indicated that his tax cut plan will result in an expanding government budget deficit.
He is correct, given that he doesn't plan on shrinking government. Any cuts in one sector will be balanced by spending in other sectors, especially the military. If he doesn't balance dollar for dollar one tax cut with an increase elsewhere the difference will be made up by an increase in the budget deficit and that is exactly where he is going.
He said during the interview:
I will tell you this. Look we are doing, we just put in I think a great tax proposal the economy is going to boom and you'll see that it'll take a period of time and you're going to have some deficits in the meantime it's sort of called priming the pump you have to prime the pump... we are essentially at 1% GDP and we're supposed to be happy about it, no we have to prime the pump.This idea that government spending will somehow boost the economy is complete Keynesian nonsense.
Government spending does nothing but take funds away from the private sector, It can occur via taxes or via government borrowing which crowds out private sector borrowing.
Trump is unlikely to be aware of it but the term "priming the pump" traces back to the policies of Herbert Hoover.
Specifically, pump priming is the action taken to stimulate, from a Keynesian-type aggregate demand perspective, an economy through increases in government spending, and interest rate and tax reductions.
The term "pump priming" is derived from the operation of older pumps; a suction valve had to be primed with water so that the pump would function properly.
According to Investopedia, the phrase "pump priming" was originally used during the Herbert Hoover presidency:
The phrase originated with President Hoover's creation of the Reconstruction Finance Corporation (RFC) in 1932, which was designed to make loans to banks and industry. This was taken one step further by 1933, when President Roosevelt felt that pump-priming would be the only way for the economy to recover from the Great Depression. Through the RFC and other public works organizations, billions of dollars were spent "priming the pump" to encourage economic growth.The theory that government spending is required to "stimulate"an economy has been shown faulty by Austrian school economists. (SEE: The Failure of the New Economics by Henry Hazlitt), Pump priming does nothing but distort the economy, pulling money away from consumers and entrepreneurs and placing it in the hands of politicians and bureaucrats,
It is the suffocation of an economy.