Tuesday, February 13, 2018

Trump Budget: Two Years of Trillion Dollar Deficits

Now that I've got usgovernmentspending.com updated with the Trump FY19 budget, here are the takeaways.

First, the tax cut is going to increase deficits, big time. Here are the deficits predicted by the FY18 budget:



And here are the deficits predicted by the FY19 budget.



Yikes! Back to trillion dollar deficits! Most of the increase in the deficit comes from the Trump tax cut. For instance, the budgeted FY18 federal revenue in the FY18 budget last year was $3.81 trillion, whereas in the FY 19 budget it is $3.42 trillion. That's a decrease of $391 billion.

But I wonder how accurate the forecast can be. See, here are the projections of income tax revenue, first in the FY18 budget.



Now here is the income tax revenue from the FY19 budget after the Trump tax cut.



So the Feds are expecting the Corporate Income Tax take to drop by $100 billion in FY18. Really? I'd expect a one year bump as corporations like Apple bring home billions in profits parked offshore and pay tax on their ill-gotten gains. But the Feds expect a bump in Individual Income Tax in FY18, the first year of the tax cut.

What about the spending side? Here is Defense in the FY18 budget.



And here is Defense in the FY19 budget.



So you can see that Trump is putting about an extra $100 billion a year into defense that puts it above the trillion-a-year mark by FY22.

But the basic math on the federal budget is this, for FY18.

Federal Pensions$1.0 trillion
Federal Health Care$1.2 trillion
Federal Education$0.1 trillion
National Defense$0.9 trillion
Federal Welfare$0.4 trillion
All Other Spending$0.6 trillion
Total Federal Spending $4.2 trillion

It is interesting, is it not, that all the arguments about federal spending are usually about the All Other Spending part of the budget. Which is a mere $600 billion a year. Meanwhile the big money, year after year, is in Social Security, Medicare/Medicaid, and Defense.

And remember, Donald Trump says he is not going to touch Social Security and Medicare.

Now, if I had my druthers, we'd privatize Social Security and Medicare so that the workers spent their lives saving for retirement and end-of-life health care rather than lending it to politicians in the hope that they would get it back in their retirement years. And most probably the workers would pass a ton of that money on to their children.

But imagine what would happen if we suddenly saved a couple trillion in the federal budget. According to, I think, Milton Friedman, the reality of governments is that they tax and spend up to the limit allowed by the bond market and the voters. What would happen to that $2 trillion a year in savings from people taking over responsibility for their golden years? Would it be returned to the voters in tax cuts? Or would our ruling class find other ways to bribe the voters?

I am not sure that I want to know the answer to that question.

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