WASHINGTON, February 14, 2018: President Trump has just sent his budget request for fiscal 2019 to Congress. President Trump’s budget proposal will increase annual government spending to $4.4 trillion dollars.
The White House estimates are that tax revenue will be just below $3.5 trillion meaning the deficit will be nearly $1 trillion.
According to the Congressional Budget Office (CBO), large deficits will continue for the next eight to ten years. If that’s true the public debt will increase from the current $20 trillion to about $26 to $28 trillion. President Obama added $7.917 trillion to the debt.
The CBO estimates could be wrong.
The CBO has a spotty record when forecasting expenditures and revenues. This estimate could be far from what actually happens. One reason is that the CBO forecast assumes annual economic growth will average 2.2% for the next decade, just slightly better than growth in the past eight years.
Using the 2.2% assumption, the CBO concludes that the recently passed tax cut alone will add $1.5 trillion to the deficit over the next ten years, which averages $150 billion per year.
However, if annual growth averages 2.9%, then the deficit resulting from the tax cut is reduced to $30 billion per year. If growth averages 3.5%, the pre-recession norm, then the tax cut creates a surplus of about $80 billion per year.
Since the tax cut is likely to increase growth, the deficit will probably not be negatively affected by the tax cut.
President Trump’s budget proposal and spending targets.
According to a Washington Post analysis, the budget increases spending for Veterans Affairs, Defense, Homeland Security and Human Services. At the same time, there are large spending decreases for the EPA, the Small Business Administration, the State Department, Transportation, Agriculture HUD and the Labor Department.
Hidden within those numbers are billions of dollars in reduced spending for safety net programs.
Food stamp spending which skyrocketed under the prior administration will see billions of dollars in reduced spending, mostly because the need will be reduced by the high growth economy.
In fact, Trump wants to change the food stamp, or SNAP, policy.
Instead of giving the needy food cards which allow them to purchase virtually any items sold in grocery stores, Trump wants to send recipients commodity deliveries of food. This, Trump believes, will reduce cost and improve the quality of the food.
With the popularity of boxed food delivery groups, like Plated, Hello Fresh or Blue Apron, that President Trump has referred to, the idea is actually quite sound. Average monthly SNAP benefits for a family of four is $456.00. By providing foods at wholesale prices that meet FDA Food Pyramid guidelines, a side benefit of a program may be better health and less obesity among those on food assistance. (The Messy Relationship Between Food Stamps and Health).
Trump also wants those able-bodied recipients of government assistance, to work in return for those benefits with expectations for the elderly, disabled, pregnant or medically challenged.
Congress has the final say.
Congress is the final arbitrator on the budget and must approve the final budget. President Trump’s budget is his suggestion as to what those spending levels should be, and where that money should be spent.
What Congress finally passes, may be much different than Trump’s proposal.
Congress recently just passed and the president signed, a large increase in spending. In order to avoid another lengthy government shutdown, Congress agreed to hundreds of billions of dollars in Defense spending, aid for disaster victims and some domestic spending like funds for fighting the opioid crisis.
In addition to his President Trump’s budget proposal, the President has also suggested that America needs a massive increase in funding for infrastructure. He proposes that Congress allocate an additional $200 billion as seed money to trigger $1.5 trillion in infrastructure spending.
Trump expects the private sector and the states to make up the difference. Using private funds to build or rebuild roads, bridges and other transportation facilities helps reduce the federal government’s spending. If enacted, the result would be that some roads and bridges which are free to motorists today will now be toll roads. Trump may argue that, in some instances, the users of the roads should pay the toll, while taxpayers who do not use the road, should not pay.
What about a balanced budget?
Since 2009, the large annual budget deficits have increased from just under $11 trillion to more than $20 trillion. Trump did promise he would reduce annual deficits so that the public debt would not increase. Even using the most optimistic forecasts, the public debt will increase significantly during Trump’s term in office.
President Trump’s budget has placed economic growth, rebuilding the military and reforming the tax code as his primary priorities. By next year, the economy should be growing at a healthy rate, perhaps as high as 4 ½% to 5%. Increases in military spending will have been approved and his tax plan will be fully implemented.
At that time, he will turn his attention to reducing spending to reduce the deficit and stop the growth of the public debt.
Let’s hope he can figure out a way to do that.