Trump’s 5% Budget Cut Plan Will Still Spike Deficit To Over $1 Trillion

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Just in case you haven’t heard about Donald Trump’s order yesterday that each member of his cabinet develop a plan to reduce her/his budget by five percent, take a look at these reports from CNBC and The New York Timesand then realize how much Trump doesn’t understand about the federal budget he’s charged with managing.

The Trump plan supposedly is in response to the political and economic flak he is taking after his own Department of the Treasury and Office of Management and Budget released a report this week officially showing that, because of Trump policies, the federal deficit had increased by 17 percent from 2017 to the just-completed fiscal 2018, and would increase to more than $1 trillion this year. Congressional Budget Office projections show the deficit staying well above $1 trillion for years.

Like most of Trump’s policy pronouncements, this one was very short on details.

Presumably, he was talking about a five percent cut for the fiscal 2020 budget he is supposed to submit to Congress next year. That means that the 2019 deficit will still come close to the $1.1 trillion estimated in the Treasury/OMB report.

And it could be much higher. In addition to the five percent reduction, Trump has previously indicated that he wants another tax cut (currently estimated to reduce revenues by $630 billion over ten years) and an infrastructure program ($1.5 trillion in new spending over ten years but it’s not clear how much of that would be federal as opposed to state dollars) that would add perhaps $100 billion to the 2020 deficit.

And Trump is still insisting that Congress pay for his wall with Mexico, which would add billions more.

But even if you put Trump’s deficit add-ons aside, the his five percent plan would have little positive impact on the government’s bottom line.

Here’s what the plan would look like using fiscal 2019 — where we have better numbers — rather than 2020.

First, the Treasury/OMB report said that total 2019 spending will be $4,510 trillion and five percent of that is $225 billion. Subtract that from the projected deficit of $1,085 billion and you get a deficit of $860 billion. That would still be an increase over the $779 billion deficit recorded in 2018.

(For the record, a 24 percent spending reduction would be needed to completely balance the 2019 budget.)

But much of the $4,510 billion can’t or won’t be reduced by five percent. For example, interest on the national debt literally cannot be cut and Trump is highly unlikely to want to reduce military spending by the full five percent, if at all.

The big question is whether Trump would dare to propose a five percent cut in Social Security, Medicare, veterans benefits and other mandatory programs. Although Senate Majority Leader Mitch McConnell (R-KY) has been saying in recent days those programs had to be cut to reduce the deficit, that’s probably more of a pre-election sop to the GOP base than a serious plan.

In addition, it’s hard to believe that Trump will propose to cut any of these programs just as his 2020 reelection campaign is getting underway.

I estimate that spending in 2019 on interest, the military and mandatory programs will be about $3,350 billion, so excluding those programs will leave $1,160 billion that would be subject to Trump’s five percent edict. That would be $58 billion.

A $58 billion cut from the Treasury/OMB-estimated $1,085 deficit would result in a deficit of $1,027. But add in the revenue loss from another tax cut, an infrastructure program and more spending on the wall and unexpected hurricanes or other disasters that are almost certain to occur, and the Trump 2019 deficit is guaranteed to exceed $1.1 trillion.

For 2020, it could easily exceed $1.2 trillion.

And all this assumes that Congress will agree to the reductions, which it probably won’t do.

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