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Inside President Trump’s 2019 Budget Proposal

Monday February 19th, 2018   •   Posted by Craig Eyermann at 8:19pm PST   •  

When President Trump released his budget proposal for the U.S. government’s upcoming 2019 fiscal year last week, my first impression is that it was ugly. Having taken more time to review the proposed spending details included within it, I’d like to up the ante in describing it to “really ugly”.

To see why, here’s a chart that ranks the major changes in the U.S. federal government’s proposed spending from FY 2017 to FY 2019, which reflects the abandonment of the hard won spending constraints that had been imposed to restore some fiscal discipline following the excessive and wasteful spending of President Obama’s early years in office in favor of something that might be described as President Trump’s attempt to re-create the spending heydays of both the New Deal and the Great Society in the 21st century.

Proposed Changes in U.S. Government Spending from FY2017 to FY2019

What makes these spending increases ugly is that President Trump has simply gone along with increasing the spending of the federal government’s New Deal and Great Society spending programs, without any meaningful effort to reform them to either put them onto a sustainable fiscal path or to mitigate against the growing risk of failures associated with these massive mandatory spending programs of bygone eras.

Social Security alone will become the federal government’s first trillion dollar spending program. Meanwhile, the combined spending for Medicare, Medicaid and the Affordable Care Act will exceed that benchmark, adding another $1.2 trillion to the U.S. taxpayer’s tab.

In terms of discretionary spending, the Defense department will see the biggest boost, with spending rising by nearly $90 billion to over $688 billion. Meanwhile, President Trump’s focus on new infrastructure spending will significantly hike the amount of spending under the “Community and Regional Development” banner, which is set to rise from near $25 billion in 2017 to over $70 billion in 2019.

At the same time, the spending cuts that President Trump has proposed, such as indicated for Education programs, and more precisely, for higher education programs, can be considered to be virtually dead already, where President Trump has effectively retracted the proposed cuts in having signed the Bipartisan Budget Deal.

That latter action means that the annual deficits projected in President Trump’s FY2019 budget proposal will be much larger than advertised.

But what makes President Trump’s budget proposal “really ugly” is what happens to the net interest that the U.S. government must pay on its total public debt outstanding.

A massive increase in spending combined with an economic environment in which interest rates are rising is a recipe for spiking the rate of growth of this component of the U.S. government’s mandatory spending. Even with all the optimistic assumptions of proposed spending cuts actually happening and exceptionally robust GDP growth contained within President Trump’s budget, the amount of interest that the U.S. government will have to pay to its creditors is set to increase by over 38%, or more than $100 billion, over two years from FY 2017 to FY 2019.

In doing so, net interest on the national debt will grow from being the sixth-largest major spending category in the U.S. government’s annual budget in 2017 to being the fifth-largest in 2019 with $363 billion devoted to it, surpassing all of the U.S. government’s welfare programs, such as SNAP, unemployment benefits, housing assistance, etc., which will themselves total nearly $348 billion. Even if everything goes as perfectly as what President Trump has proposed.

“Really ugly” is really the only way to describe it.

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February 2018