Trump Budget: Deficits as Far as the Eye Can See?

Trump Budget: Deficits as Far as the Eye Can See?

President Trump and the GOP released their current budget proposal which will now be taken in Congress.  Despite the media knowing the final budget bill from Congress will be quite different than what the President has proposed, that has not restrained the critics in their assault on the President’s fiscal requests.


“A moral problem…”

“Divorced from reality…”

And those were comments from Republican leaders.

The biggest concern for conservatives, specifically the Freedom Caucus – who were mostly elected in 2010 on a Tea Party platform focused on deficit reduction, is the massive increase in federal debt this spending plan would create.

Surprisingly, most Republicans in Congress have succumbed to “Inside the Beltway” numbers crunching … meaning static scoring of reduced taxation.  Tax less, spend more, then yes, you will go into the debt and deficits – rapidly.  However, static scoring does not take into account increased tax revenue from economic expansion.  Furthermore, the Trump budget requires $3 trillion in spending cuts over the next 10 years.

But the left also has a point: (1) Trump’s spending cuts are already ignored by the bi-partisan budget committee; and (2) the increased spending could outstrip gains in tax revenue, and the increased spending is substantial.  While Democrats in Congress may have no leg to stand on, since the largest deficits in U.S. (world) history occurred during the Obama years, they make an important point in the budget debate that Republicans used to care about deficits.  Do they still?

Top Highlights of the Trump Budget Proposal:

  1. $716 Billion in defense spending – massive increase. This massive increase in U.S. defense spending comes at a time of renewed great power conflict while terrorism remains a global threat.  The world was radically altered for the worst over the last 8-9 years, and the Budget Sequester prevented increased defense spending.  This will be a welcome change.
  2. $13 billion for the Opioid Crisis. A scourge in many economically hard-hit communities, the Opioid epidemic reached epidemic proportions during the last administration, but finally, some federal coordination and help will be made available.
  3. Over $200 billion for infrastructure. Will this be another “shovel-ready project,” “bridge to nowhere,” or “Solyndra?”  The nation’s infrastructure is strained, but not collapsing.  It is older than some modern developments in other countries, but you can find a regional airport in every backwoods town in the country … venture outside a major city in China and you are driving on mud roads.  Nonetheless, this was a campaign promise made by President Trump, and we do have critical infrastructure needs this funding should address.
  4. $85 billion for Veteran’s Programs. Another campaign promise, taking care of our Vets.  If this money helps improve response times at the VA, and the money gets to those truly in need, this is a worthy investment that has been a long-time coming.
  5. $23 billion in border security … including funding for a wall Make no mistake, the left has gone all the way to the position of Open Borders, and that is NOT what Americans support.  The failure to enforce our border for the last decade has created untold damage to the nation’s cultural cohesiveness and the economic hopes and dreams of millions of Americans.  The lost jobs, the lower wages … everyone supports the immigrant story of “Coming to America,” but rational people want the arrival to be legal.  If we must abide by the law, so should everyone else.  Trump’s election is the result, in no small part, in voting Americans seeing the rich and the powerful get away with breaking the law, with non-citizens getting away with breaking the law, and the average citizen getting fed up with it.

Static scoring and all of the commentary have suggested this spending plan will create soaring deficits for years to come, with the average number settling at around $7 trillion in new debt by the end of Trump’s first term.  That, if true, is not a conservative spending plan.  But, most of the scoring of the budget proposal is the same ol’ static model which always gets the revenue side wrong.  Tax reform, for example, will increase tax revenue collection.  But more revenue cannot off-set even more spending, so why are the Republicans in favor of such a budget?  It’s pretty simple – the Republican Party only believes the deficit can be tamed through entitlement reform.  And since very few voters or Democrats will go along with that plan, at least not today, we are stuck in a constant feedback loop of debt and deficits as far as the eye can see.

  What Will Higher Deficits Mean for the Larger Economy?

  1. We could have a debt crisis sooner rather than later. According to former Fed Chair Alan Greenspan, the last 8 years fiscal and monetary policies, combined with more debt on the fiscal side, is creating the potential for “…debt crisis in this country sooner rather than later.”  It is an ominous warning.  If a stock market bubble bursts and the bond market follow suit, he will be right.
  2. Dollar value could continue to drop … affecting domestic price levels. In plain English?  Inflation is on the rise and could continue.  Anyone living in the late 70s and early 80s remembers the “stagflation” of that era.  It may not be upon us, but it is coming sooner or later.
  3. Productivity growth has been between 0-0.5% for a decade and will only worsen. American productivity used to be the envy of the world, averaging over 2% increases in productivity, or more, every year since the end of World War II.  The slowdown has been defined in many ways by economists on both the left and the right, but the most common theme is that easier access to social welfare support and disability has decreased the need to produce more to retain a worker’s job … lost employment sends you into one or more of many support mechanisms.  That is more spending, more debt, but also keeps growth slower than it could be, also worsening the GDP outlook and therefore tax revenue collection.

In conclusion, the Trump budget represents a positive change for national defense, an end to the sequester, and a pro-sovereignty position on border enforcement.  These changes were needed and necessary.   The money spent is in response to years of neglect.  But the deficit hawks have a point – we will face a day when we pay the piper, and markets will react accordingly.

Call our expert Advisors at Ty J. Young Inc. today and learn how you can have your money protected from stock market fluctuation and growing at the same time. 877-912-1919

Leave a Reply