2020 Budget proposal
President Trump is getting ready to propose his budget for 2020. It is expected that he will ask for a 5-percent across-the-board cut for all programs other than defense. At first pass, this may sound reasonable but if you dig a bit deeper, a different picture emerges.
Our extraordinarily high defense spending
We currently spend an extraordinary amount on defense. US defense spending is extraordinary in terms of:
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- absolute dollars ($685.9 billion in FY 2019),
- the share of the budget (approximately 16 percent), and
- the amount relative to other countries (we spend twice as much as China and Russia combined) [the balance 1 and PGPF].
The Department of Defense’s (DOD’s) budget of $685.9 billion is not the full cost of defense as there are other agencies involved in national security and taking care of military personnel such as the State Department and the Department of Veterans Affairs. When we include the spending from all agencies on national security, the cost of defense soars to $886 billion or 20 percent of spending in FY 2019 [the balance 2].
We also are spending more than DOD requested. In FY 2019, DOD received $19.6 billion above its budget request [the balance 1].
where’s the war?
Defense spending has been increasing steadily since 2012 despite the fact that US basically pulled almost all the troops out of Iraq and Afghanistan by the end of 2014 [FAS]. We are not engaged in a major war and ISIS no longer holds any land. Yet, current defense spending is at the level it was at the height of Iraq and Afghanistan wars.
the consequences of high defense spending
High levels of defense spending are not without economic consequences. Only 30 percent (1.305 trillion) of the federal budget is discretionary. The remaining 62 percent is for required payments on the national debt or for entitlement programs such as Social Security and Medicare. Defense spending is discretionary and comprises over half (52 percent) of discretionary spending [the balance 3]. High defense spending crowds out other spending. This is especially true for spending on non-entitlement social programs. Another consequence of high defense spending is it contributes to the deficit. We are currently running a very large deficit, $985 billion, as our spending is greater than tax revenues.
Given these budget realities, excluding DOD from budget cuts will put great pressure on the remaining small share (about 14 percent) of the budget that are non-DOD discretionary funds. Trump’s proposed across-the-board 5-percent budget reduction will have to be taken out of non-DOD discretionary spending. Assuming this target does not include interest payments of the national debt, which are running about $364 billion [the balance 4], the 5-percent reduction goal translates to approximately $202 billion. As such, a 5-percent general cut ends up being equivalent to about a 33-percent on discretionary spending ($202/(1305-685). This magnitude will decimate many discretionary spending programs.
Trump’s budget plan is a cop-out
The administration has been spending at very high levels and has been juicing the economy and growing the debt. They are likely now to use the high deficit, which was largely created as a result of the tax cuts, as the argument to cut government spending. Along with the loss of social programs, this action will be contractionary for our economy. However, by waiting until 2020 to take action, the administration has pushed the inevitable economic down turn out past the election. By the time unemployment rises due to the spending cuts, Trump either will be a lame duck President in his second term or it will be another person’s headache.
We do need to rein in the deficit. This can be done without destroying our safety net through a combination of purposeful budget cuts and increases in taxes. Furthermore, any serious reduction in spending needs to include Social Security and Medicare as these programs comprise approximately 38 percent of all government spending [KFF]. Also, both of these programs are projected to continue to grow. One cannot have a meaningful budget reduction policy without including these programs in the discussion.
Trump’s plan is a cop-out. He does not address the hard problems. In fact, he does not address much of anything but rather provides a target and dumps the details on Congress. There is no economic plan or leadership.
Update: the budget came out and it wasn’t a cop out but rather a slash and burn of social programs. Cutting benefits and reducing eligibility. These programs have been greatly limited since the 1990s and already have work requirements (e.g. SNAP, TANF). Taking this further you are taking benefits away from people who are disabled and cannot work. Where will they go? On the street, into crime, possibly die? These policies have no heart.