FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
March 21, 2017
1. President Trump Unveils Controversial US Budget Proposal
2. Odds of Trump Getting His Budget Passed: Next to Zero
3. A Big Picture Look at Trump’s Controversial Budget Cuts
4. Why Trump’s Budget Will Never See the Light of Day
5. Alpha Advantage Webinar on March 30 at 3:00 PM CST
Last week President Trump unveiled a surprising new federal budget proposal for fiscal year 2018, which begins on October 1st. The budget was a shocker in that it proposed cutting spending in every federal agency save for Defense, Homeland Security and Veterans Affairs.
The new budget would slash Environmental Protection Agency spending by over 31% next year and cut State Department spending by over 28%, all in one fell swoop. It is by far the most conservative, smaller government budget we have seen in my adult lifetime.
Yet Mr. Trump’s new budget, with near across-the-board spending cuts, has little chance of passage in Congress. I’ll explain why as we go along today.
President Trump Unveils Controversial Federal Budget Proposal
You can usually evaluate a president’s budget proposal by the reaction from the mainstream media. The White House put out President Trump’s preliminary budget for fiscal 2018 last week, with sweeping budget cuts, and the mainstream media had a hissy-fit, to put it mildly.
If you’re a conservative, you probably get a good feeling when the mainstream media has such a negative reaction to news like Trump’s latest controversial budget proposal. While I will not adamantly defend Trump’s budget, I will put it in some statistical perspective.
Trump campaigned on a pledge to shrink the size of government. He won by a significant margin in the Electoral College where it matters. His latest budget unquestionably makes good on that promise. He proposes to cut spending for all but three government agencies.
If he gets his way with these huge budget cuts, it will mean the loss of jobs for tens of thousands of federal government workers and perhaps even more at the state and local levels. The implications are enormous.
Trump’s new cost-cutting budget is the most conservative proposal from any president in our adult lifetimes, and that includes Ronald Reagan. No wonder the mainstream media has gone apoplectic in their dramatic opposition to Trump’s new budget plan.
And why wouldn’t they? These are coveted, high-benefit government jobs we’re talking about. No wonder they’re screaming to high heaven!
Odds of Trump Getting His Budget Passed: Next to Zero
While the mainstream media and career bureaucrats know the odds of Trump getting his controversial budget cuts passed are very low, they have to speak out vocally about how bad they believe his proposals are.
At this point, let me summarize Trump’s budget cutting proposals. As noted above, Trump’s budget proposed last week is the most conservative plan I have seen since I began following politics in the mid-1970s. That virtually assures that it will never be passed by Congress.
But for sake of argument, let’s look at a graphic of Trump’s latest budget proposal showing what gets cut and what gets increased.
Trump Proposals For Government Agency Budget Changes
Let the above chart sink in. We’ve never seen anything like it. The size of the federal government grows year after year, regardless whether Republicans or Democrats control Congress and the White House.
Yet under Trump’s first budget proposal, every government agency gets a budget haircut, except for Defense, Homeland Security and Veteran’s Affairs.
These are not agency budget cuts that would be phased-in over a number of years. If passed, these cuts would be effective in-full on October 1 this year. Imagine cutting the EPA budget by over 31% on day one. The EPA Director says he will have to slash over 3,200 jobs if this budget cut is approved. The list goes on and on, as you can see above.
The reality is that President Trump’s initial limited federal budget has little to no odds of passage. This is likely Trump’s first proposal in his “The Art of the Deal” way of negotiation. He will almost certainly settle for something less dramatic. Yet his vision to dramatically cut down the size of the federal government is obvious.
A Big Picture Look at Trump’s Controversial Budget Cuts
Many Americans, and the mainstream media, of course, will look at the broad government budget cuts proposed by President Trump and conclude that they are draconian. Yet let’s put these proposed budget cuts in a much larger perspective.
To begin this discussion, we have to consider some undeniable facts and make some assumptions. Fact #1 is that our national debt is about to hit $20 trillion. Fact #2 is that this debt will continue to spiral out of control.
The federal budget deficit for fiscal year 2016 was almost $600 billion, and the Congressional Budget Office projects that the deficits will soar to over $1 trillion annually again in the next few years and stay there indefinitely.
Fact #3: We will never pay off the national debt. Period. Not going to happen. The assumption is that we will default on our debt at some point, but that is a discussion for another day.
In light of these facts, let’s put President Trump’s controversial budget proposal into a perspective that the mainstream media would never consider. Let’s start with the basics.
In fiscal year 2016, the federal government spent about $3.9 trillion. Last year, total government revenues were only about $3.3 trillion, so we ran a deficit of almost $600 billion.
Trump wants to increase the Defense Department’s budget by 10% next year, an increase of apprx. $54 billion. Sounds huge, doesn’t it? Yes, but let’s put that into perspective:
Trump’s new budget proposal would shift a mere 1.35% of that $3.9 trillion spent to the Defense Department from other spending priorities. That’s it.
If you get nothing else from today’s E-Letter, this should be the point. The notion that Trump’s new budget is a radical and cruel restructuring/downsizing of the federal government is misguided. Why do we have to let the government get larger every year? We don’t!
Trump’s intention is to add $54 billion to the Defense Department budget and pay for it with cuts in every other government agency except for Homeland Security and Veteran’s Affairs, which would see modest increases.
And one final fact on Trump’s proposed Defense Department budget increase of 10%, before I move on. The proposal is a 10% increase over the 2018 budget cap set by the Budget Control Act of 2011. Yet it is only about 3% above what Barack Obama proposed in his final budget for fiscal year 2017. Obama agreed to a higher defense budget than he really wanted, because he wanted to neutralize the defense issue during the presidential campaign.
Assuming Trump gets his $54 billion increase, most of that money will meet urgent needs in operations and maintenance to keep aging tanks rolling, older planes flying and troops trained and moving. Put differently, that first $54 billion, if he gets it, is already spoken for.
The money it will take to meet Trump’s serious plans to significantly enlarge the military – such as his pledge to build a 350-ship Navy — will have to start with the fiscal 2019 budget expected to be hammered out later this year.
As for cutting domestic non-entitlement programs, as illustrated in the chart above, it’s hard to argue that the federal government couldn’t survive a near across-the-board budget cut. It could, although the reductions Trump is calling for might have to be enacted over several years to avoid a recession.
The question is, would the American people even notice if the Agriculture and Labor Departments had to cut their budgets by 20%, or Commerce by 15%, as Trump proposes?
I don’t think so!
Why Trump’s Budget Will Never See the Light of Day
In the big picture, budgets offered by Modern Day presidents never make it through Congress intact. I can guarantee that a very controversial budget such as that announced by the Trump administration last week is going to go through the political meat grinder. The final budget will look nothing like the illustration above. Count on it.
There are several other reasons why Trump’s initial budget won’t see the light of day. A slew of columnists have weighed in on this question since the Trump budget was unveiled last week. I’ll summarize the prevailing thinking for you below.
- The “Trump Budget” is Not Really a Budget
Trump’s so-called “skinny budget” only includes proposals for apprx. one-third of all federal spending that will occur in fiscal 2018. It does not address the other two-thirds of non-discretionary spending (Social Security, Medicare, etc.) and does not include any revenue estimates, deficit estimates and no forecasts of economic growth.
- The $54 Billion Defense Hike Not Allowed by LawThe $54 billion hike that Trump wants for the Defense Department significantly exceeds the mandatory caps set by the Budget Control Act of 2011. Those budgetary caps are a matter of law and cannot simply be ignored. The Trump administration has not mentioned a plan for how to deal with this problem.
- Trump’s Budget Will Need 60 Votes & Support From Dems
The only practical way to get the $54 billion defense increase that busts the caps is to get enough Democrats to come onboard to get 60 votes. I think it is plenty safe to say that no Democrats, not a single one, will vote for this budget in its current form.
In summary, the budget President Trump unveiled last week excited many smaller-government conservatives. Yet it outraged just about everyone else. As many have suggested, it was “DOA.”
It will be interesting to see if there is a Plan B.
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Article by Gary D. Halbert