Five Key Numbers From President Donald Trump’s 2019 Budget

Presidential budget proposals are often dismissed by Congress, but they illustrate the White House’s key priorities and assumptions about what those policies would do. Here’s a look at five key numbers from President Donald Trump’s 2019 budget proposal.

Lower Revenues
-$2.7 trillion Over 10 Years

For the decade ending 2027, the Trump administration sees revenues falling lower by around 6%, or $2.7 trillion, compared with last year’s projections. Revenue in 2019, at 16.3% of GDP, would fall to levels traditionally seen only after recessions.

Last year, budget analysts and economists cried foul when the Trump administration appeared to double-count certain revenues. Officials projected economic growth would generate an extra $2.1 trillion in revenues over a decade, but they appeared to count this money both to pay for deficit reduction and to offset the cost of tax cuts.

This year’s budget wasn’t able to make that assumption because it accounted for the tax cut signed into law by Mr. Trump in December. While the Trump administration revised up its projections of economic growth, it now shows a much bigger revenue hole than did last year’s budget.

Higher Deficits
An 87% Increase in 2019

The Trump administration now estimates a budget deficit of $984 billion next year, which represents an 87% increase from last year’s projection. As a share of economic output, the deficit will rise to 4.7%, from 3.4% in 2017. Last year, the Trump administration projected the budget deficit for 2019 would fall to 2.5% of GDP.

Higher deficits in the short run forced the Trump administration to acknowledge what many analysts and economists have said for months: It will be impossible to balance the budget while spending more on the military, cutting taxes and maintaining spending programs that are on autopilot, such as Medicare and Social Security.

The Trump administration says large cuts in spending for nondefense programs can reduce deficits to 1.4% of GDP by 2027. Last year, the budget assumed a budget surplus of 0.1% in the same year.

Cuts to Domestic Spending
-41% Over a Decade

The Trump budget is proposing to reduce nondefense discretionary spending caps by 41% over the coming decade. As a share of the economy, nondefense discretionary funding would fall to its lowest levels on record.

Congress has had other ideas. After years of spending cuts or increases that haven’t kept up with inflation, lawmakers last week agreed to boost nondefense discretionary spending caps by 10% over existing levels.

A Boost at the Pentagon
+7.4% Compared With Last Year’s Proposal

Mr. Trump promised to boost spending in his budget submission to Congress, but this year’s proposal carries an even larger increase. His budget would raise defense spending over the period ending 2027 by 7.4% compared with his proposal last year.

Still, because of the growth of spending on entitlements and interest payments on the debt, this would leave military funding at a lower level as a share of the economy than it is today. Defense spending would peak at 3.3% of GDP in 2020 before declining to 2.4% by 2028.

Stronger Growth
The Economy Expands 3% Annually

The budget again assumes the economy will expand at a 3% annual rate, above the 2% level that has prevailed for the last decade and that many private forecasters expect is more likely after the effects of the tax cuts wear off in a year or two.

This would leave the economy around 11% larger in 2027 than the Congressional Budget Office has projected.

Presidential budgets differ from CBO forecasts because they get to assume that all of the president’s policy proposals become law, but Mr. Trump’s is still more optimistic by other measures because it assumes a big increase in growth without a rise in inflation or government borrowing costs.

In President Barack Obama’s second budget proposal to Congress in 2011, for example, he estimated that by 2020, the economy would by around 7% larger than CBO estimated.

Mr. Obama also assumed that higher growth would bring with it more inflation and higher borrowing costs. Even though his projections of stronger growth proved too optimistic, deficits were also lower than expected because interest rates were lower.

In 2011, for example, the Obama administration projected deficits would reach 3.9% of GDP by 2016, and the debt would reach 74% of GDP. Deficits were actually a touch lower—at 3.1% of GDP in 2016—and the debt-to-GDP ratio was 75%.

RELATED

Trump Administration Proposes $4.4 Trillion Budget for Fiscal 2019 (Feb. 12)

Sizing Up the Trumponomics Gamble on Deficit Spending and Inflation (Feb. 11)

Donald Trump’s Balanced Budget Goal Rests on Questionable Assumptions (May 23, 2017)

from Real Time Economics http://ift.tt/2o1QUFb