On May 22, 2017, President Trump announced his first budget for the fiscal year 2018. Overall, the Trump Budget will spend $4.1 trillion which is on par with Obama’s budget for 2017. But, President Trump has proposed $3.6 trillion of cuts to balance the budget by 2027. He has also shifted spending between budget categories. Here’s what you can expect from President Trump’s budget proposal.
A Balanced Budget in 10 Years
There are two ways to balance the federal budget. One way is to reform taxes to earn more revenue and the second way is to reduce overall spending and change the way government spends your tax dollars.
The Trump Administration plans to cut spending over the next 10 years and projects a $16 billion surplus in 2027. This is accomplished partially by cutting spending by $3.6 trillion over 10 years by reforming health care (including the Medicaid and Social Security Disability Insurance program), the welfare and SNAP food stamp program, and cutting spending in other domestic programs that are redundant.
According to the White House website, Medicaid reform will save $272 billion over 10 years and $150 billion in improper payments.
Through economic growth and increased tax revenues (from a simpler code), the projected boost in employment payroll taxes and business taxes paid will reduce the deficit further.
Increased Spending For Defense, Infrastructure, and Border Security
Delivering on his campaign promises, the Trump budget is shifting spending from domestic programs to defense, infrastructure, and border security programs.
In regards to defense spending, Trump is proposing an immediate $54 billion spending cut across the non-defense government agencies and that money will be spent on the Department of Defense instead. In the upcoming years, the same domestic agencies will cut their budget by 2% annually to help offset the defense spending increases and to help balance the budget.
This 14-letter word was a buzz word from both candidates in the 2016 election. It’s also been important in many individual state budgets too. Trump wants to spend $200 billion in federal money to spend a total $1.1 trillion in public-private infrastructure projects across the country for transportation, public utilities (electric, water, and waste), airports, and ports.
Trump wants to dedicate $2.6 billion to border security. The first $1.6 billion would be devoted for a “new and replacement” border wall. The additional funding would be used to strengthen the number of border agents and their equipment.
Paid Parental Leave
What you might not expect from the Trump budget is paid parental leave. New mothers and fathers can receive up to 6 weeks of paid leave for the birth of a new child or an adoption. The program is anticipated to cost anywhere between $19 billion and $25 billion over the next decade.
Each state would determine how to pay the benefits and the criteria. States would be required to provide six weeks and would be funded from the unemployment insurance system. This additional expense would be offset by the cuts in improper payments and help the unemployed find jobs quicker instead of continuing to collect unemployment benefits.
Child Tax Credit Reform
A new proposal to help deliver on his immigration reform pledge is to require a valid Social Security number to collect the Earned Income Credit (EIC) and the Child Tax Credit. The Trump tax plan says this change can save approximately $40 billion over 10 years. This is because illegal immigrants that are parents are children born in the U.S. would no longer be able to collect the credits until they become legal citizens and receive a Social Security number.
Is the Trump Budget Realistic?
As with any presidential budget, there are some potential conflicts.
Unrealistic Projected GDP?
Trump’s projected GDP is considered overly optimistic to a few experts. His budget predicts the projected GDP to be higher than the long-term Congressional Budget Office (the primary agency for federal budget numbers) projections. Trump projects annual growth of 2.9% while the CBO predicts 1.9% GDP growth through 2027.
The stock market is currently enjoying one of the longest bull markets ever. Many economists say it’s not a matter of if a market correction will occur, but when. If the stock market enters a bear market and has a small correction, it will be very difficult to post the projected GDP growth that the Trump budget is relying on to balance the budget by 2027.
Less Tax Revenue
Economists view the Trump tax plan from varying viewpoints. If the proposal to lower tax rates passes, businesses and individuals will pay fewer federal taxes every year. If this causes households to spend more money and businesses to increase payrolls, tax receipts will increase despite having a lower rate. But, if households keep the money instead of spending it, gross tax receipts will be lower and the deficit will rise without cutting federal spending proportionally. For example, if tax revenue drops 5% in 2018, federal spending would need to be cut 5% to avoid contributing to the national deficit.
With any new presidential administration, there will be a change of budget priorities. The Trump budget is no exception. While some people will applaud his cuts and spending shifts, others will protest the changes if they support those programs. The two potentially radical ideas that people will need to keep their eyes on is the paid parental leave and balanced budget initiatives and their true impact on the federal deficit.