The federal government's fiscal outlook has been in decline since the Bush administration, and President Trump's new budget plan is another step in the wrong direction.
Trump's 2019 budget ramps up spending on the military and border security. Although the budget offers some ideas for domestic spending cuts, most of these won't see the light of day. In other words, it continues the long-term unwinding of the nation's fiscal discipline.
The newly released 2019 plan calls for $4.407 trillion* of expenditures while forecasting $3.422 trillion* in revenue, resulting in an anticipated deficit of just under $1 trillion. The budget forecasts a similar amount of red ink in 2020, followed by declining deficits—but never a budgetary balance—through the rest of the ten-year projection window.
Normally, it would be possible to benchmark White House forecasts against Congressional Budget Office (CBO) projections. Not this year.
In late January, CBO typically issues its own ten-year budget forecast. But that document has yet to appear, because CBO says it needs more time to calculate the impact of December's tax measure. CBO won't say when it expects the report to appear.
The delay is just the latest milestone in the collapse of federal budgetary procedure—one in which a deliberative annual review process has given way to last-minute continuing resolutions and omnibus spending bills.
Under Trump's new budget, the White House projects a $363 billion deficit in 2028. However, It only reaches that level by assuming over $1 trillion in unlikely cuts and reforms.
Among the major deficit shrinking proposals in the budget are the repeal and replace of Obamacare, elimination of Overseas Contingency Operations (i.e., ending the endless wars in Afghanistan and elsewhere) and the "two-penny plan" which involves annual unspecified 2 percent reductions in non-defense discretionary spending. These concepts are likely to be dead on arrival in a divided Congress.
The budget offers nothing on entitlement reform and combines increased military spending with new outlays for the President's wall, now that he has finally realized that Mexico won't pay for it. Trump's proposal might thus be called a "Guns and Walls" budget.
Back in the sixties, the Johnson administration gave us the concept of "Guns and Butter"—the idea that we could lavish money on new social programs while also funding the Vietnam War. That policy gave rise to runaway inflation and weak economic performance in the seventies.
After decades of deficits, Congressional Republicans and the Clinton Administration finally balanced the federal budget in the late 1990s. But fiscal restraint quickly unraveled under George W. Bush's administration, which launched wars in Afghanistan and Iraq as well as a Medicare prescription drug benefit without raising offsetting revenue.
Trump's new budget includes $686 billion for the Department of Defense—13 percent more than the 2017 level—and matching the amount in the bipartisan spending bill approved Friday morning. But DoD spending is only part of the true cost of America's national security establishment. Spending on Intelligence, the Department of Energy's nuclear stockpile activities and the Veteran's Administration also need to be included. Those additional functions together raise the total defense tab to around $1 trillion annually.
To get the higher defense spending they so desperately wanted, Republicans had to agree to Democratic demands for more domestic spending. Earlier in the decade we used to talk about a "grand bargain" between Republicans and Democrats to resolve the nation's fiscal problems through spending cuts and revenue increases. Instead, the bipartisan grand bargain we got last week busts through all previously agreed spending caps, and does not offset the added spending with new revenue. It sends us further down the road to fiscal Armageddon.
The Trump administration now suggests that Congress does not have to enact all the domestic spending it just agreed to. To enable this yet-to-be-achieved spending restraint, Trump recommends that the American people send more Republicans to Congress in the 2018 mid-terms. But given Trump's low approval numbers, the degree of enthusiasm among anti-Trump forces and a record number of House Republican retirements, it is the Democrats that are in the best position to gain seats.
So instead of the declining deficits fantasized in today's budget, we are more likely to enter a regime of permanent trillion-dollar deficits. And, as the recent financial market turbulence suggests, there is a limit to investors' patience with this new reality.
*CORRECTION: The original version of this piece uses billion, not trillion, for expenditure and revenue figures.