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Federal $300 billion Spending Deal Signed By Trump, Ending A Government Shutdown And Implementing A Two Year Budget Deal: Will The Deficit Balloon?

ArmchairPolitician.US, February 18, 2018, by Brad Peery

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On February 8, 2017, the $300 billion budget deal became law. Shortly thereafter, Trump introduced his detailed fiscal 2019 budget forecast that did not include the details of the $300 billion budget deal. The 2019 budget forecast needs to be analyzed, and then the differences of the two budgets needs to be highlighted, to the extent possible. The main issue is that Trump will not be able to reduce non-defense spending to offset the increases in defense spending.

The details are that the deal would raise the spending caps by about $300 billion over two years. The limit on military spending would be increased by $80 billion in the 2018 fiscal year and $85 billion in 2018. The limit on nondefense spending would increase by $63 billion in 2018 and by $68 billion in fiscal 2019. The budget does have in it the personal tax reductions, the corporate tax reductions, including the reduction in the corporate rate to 21%.

Included in the budget are an increase in defense spending by $44 billion in 2018 and an identical $44 billion increase in fiscal 2019. The spending bill has defense spending at a total of $165 billion over the two years. Therefore the budget could understate the deficit because of defense spending by $77 billion in fiscal 2019.

The limit on non-defense spending adds $131 billion to spending in 2018 and 2019. The budget shows an increase of $42 billion for non-defense spending for the two years. Thus the budget understates the deficit for non-defense spending by $89 billion in 2019. The total increase in the deficit for the second year, fiscal 2019, is $166 billion. The budget shows a deficit of $984 billion in 2019, but the $350 billion spending increase takes the deficit to $1,150 billion in 2019. If the budget deficit increases by $166 billion per year for 10 years, besides the $1.5 trillion the tax cuts added to the deficit, the $350 billion spending increase adds $1.66 trillion to the 10-year deficit.

ArmchairPolitician.US Opinion
The U.S. budget deficit is out of control. The Democrats have forced Trump to increase non-defense spending by just about the amount of defense spending, jettisoning his plan to reduce government waste. The Trump budget shows a deficit of $445 billion in fiscal 2028. To get to that level, non-defense spending would need to decline by $200 billion per year, instead of the $89 billion per year increase in 2019. Thus the deficit could be $290 billion higher because of the inability to achieve lower non-defense spending, even if non-defense spending stays flat after 2019. The deficit was $665 billion in fiscal 2017. Higher non-defense spending could take the deficit to $755 billion, even if Trump is able to achieve his projected economic growth rate of 3% over the 10-year period to fiscal 2028.

Despite the tax reductions, Trump is forecasting that individual income tax receipts will increase from $1,660 billion in 2018 to $3.070 billion in 2028, a 6.34% compound growth rate. For this to occur, a 3.0% GDP growth rate would probably need to be accompanied by a 3.4% inflation rate.

Corporate tax receipts are projected to go from $218 billion in fiscal 2018, after a $79 billion reduction from 2017, to $413 billion in 2028. This is a 6.6% compound increase over the 10 years from 2018. This again implies a very strong economy and over a 3% inflation rate.

The saving grace for Trump could be a 3% growth in the economy that pushes the inflation rate above 3%. Non-defense spending would need to stay flat after 2019, which does not seem likely. Those events are required to have the deficit grow from $665 billion in 2017 to about $735 billion in 2028, a 0.9% growth rate. Instead, It appears likely that the deficit will continue to balloon.

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