US Budget Deficit: Trump’s Achilles Heel!

Strategic Council Online: Donald Trump's general plan is aimed at restoring the US administration’s financial stability in a bid to balance the budget over a 10-year period, but it is unclear how he wants to stabilize the budget without an economic plan to raise taxes and launch fundamental reforms in social security and health care sectors in the long run. Reza Majidzadeh - Economic Researcher

The US Treasury Department reported a 27 percent increase in budget deficit over the first 10 months of this year. This is due to a two-fold increase in government spending on tax revenues; expenditures increased by 8 percent and tax revenues by 3 percent,  including spending on building a border wall between the United States and Mexico. The U.S. fiscal deficit has already exceeded the full-year figure for last year, as spending growth outpaces revenue. While still a modest source of income, tariffs imposed by the Trump administration in the trade war helped almost double customs duties to $57 billion in the period.

The annual budget deficit is expected to exceed $1 trillion starting in 2022, the Congressional Budget Office has said but this is a modest increase compared to the jump in defense and healthcare spending. The US Congressional Budget Office forecasts that the deficit will increase to more than $1 trillion by 2022.

A look at Treasury figures for fiscal year 2018 shows that all budget items, including individual income tax, have increased, with only a corporate tax rate showing a decline of 31% from 2017, part of Trump’s stimulus fiscal policy to expand corporate business and job creation in the United States.

 

US Budget Persistent Deficit

There seems to be persistence among Republican presidents in the United States to inherit a much larger budget deficit than their predecessors, but in the tradition of Democratic presidents like Barack Obama and Bill Clinton, there has been a tendency to reduce the administration deficit. The Republican tax-deduction approach makes it difficult to finance many government spending.

But what policies will Trump adopt about this deficit? Trump’s approach to the budget is outlined in his draft budget for 2020. Trump’s general plan is aimed at restoring the US administration’s financial stability in a bid to balance the budget over a 10 year period, but it is unclear how he wants to stabilize the budget without an economic plan to raise taxes and launch fundamental reforms in social security and health care sectors in the long run.

Trump believes by 2034, the budget deficit will become budget surplus, and over the next decade, government spending will be reduced by $2.7 trillion. Out of this figure $2.1 trillion comes from spending on mandatory programs. But the important point is that only 24% of these spending cuts are implemented over the first five fiscal years of the 10-year budget balancing outlook.

Trump’s policy is based on debt reduction and spending cuts and seeks to reduce the deficit to $ 202 billion by 2029, after reaching a $1.1 trillion deficit in 2021. While over the ten-year horizon, government projects based on public debt-creation will increase by $7.5 trillion. So one of these two policy bases doesn’t seem very solid.

But another important point is that if Trump wins the 2020 election, his proposals, based on budget balancing in the 10-year outlook, will be handed over to another government in the fifth year of this policy vision, and if a democratic government comes to power then it is likely Trump’s ten-year plan would be rejected and this would be another challenge. However, in the proposed plan, spending ceilings will take effect from 2021 and the 2020 US elections have not yet been held. In addition, as for the spending ceiling, Trump has acted on the opposite direction of the 2018 and 2019 budgets, and in past budgets could have eliminated the boundary between defense and non-defense spending and set a single maximum ceiling for all government voluntary spending.

In both previous budgets, each dollar of increase in US defense spending was offset by one-dollar decrease in its military spending. In fact, Trump plans to implement a budget control measure for 2020 that will have a single ceiling for defense and non-defense budgets, and the amount of funds allocated to the defense sector will be $71 billion less than the 2019 US budget. Non-defense spending in the US budget for 2020 is estimated at $543 billion, down from $56 billion on the 2019 budget. But the cuts will be offset by a maximum exemption from US military overseas spending, and Trump is seeking a $156 billion defense budget on contingent overseas spending. However, such an approach may make it difficult to control spending strategy and reduce national debt.

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