An Analysis of President Trump's 2020 Budget
By Guest Author: Professor Arthur S. Guarino, MBA, MSSc, JD, Rutgers University
President Trump’s 2020 federal budget clearly shows his priorities for the next decade: increased defense spending, the creation of a Space Force, significant funding for a southern border wall, higher long-term budget deficits, and a growing national debt. His administration’s budget will definitely affect every American as well as the macroeconomy.
On March 11, 2019, President Donald Trump presented his federal budget to Congress and the American people with the clear intent of displaying his administration’s priorities and goals. Like his previous budget, it reveals who will see a significant increase in funds and resources and who will suffer serious fiscal setbacks. There are key increases for certain programs that do not need money and large cutbacks for those that actually need more funds. Trump’s budget will ultimately mean a battle with Congress, who actually controls the purse-strings as stated in the Constitution. But the real question is: Who will benefit and who will get hurt as a result of Trump’s budget proposal?
There are various programs that will see more money and enjoy significant benefits:
Defense spending: Military spending saw a big increase in the Trump Administration budget in which it went from $716 billion for FY 2019 to $750 billion for FY2020 exceeding the Pentagon’s expectations. Breaking down the amount for FY2020, $718 billion will actually go to the Defense Department while $32 billion will be allocated for national security programs by the Department of Energy’s nuclear laboratories as well as other agencies. Military spending will include a pay raise of 3.1 percent in 2020 for personnel which is greater than 2019’s salary hike of 2.6 percent. The problem is where the funds are coming from. First, there will be cuts of 5 percent from non-defense programs such as Medicare and the State Department, to name a few. Secondly, the Trump Administration is increasing the Overseas Contingency Operations (OCO) account in a huge way to pay for defense spending. In 2019, the OCO was $69 billion but was raised in 2020 to $165 billion. The OCO is a way for the Trump Administration to avoid the spending caps imposed by the Budget Control Act. What makes this increase in military spending also odd is that the Trump Administration is seeking to lessen troops and involvement in overseas military engagements such as Syria and Afghanistan.
Funding for the United States Space Force: The FY2020 calls for the creation of the United States Space Force which would become the sixth and newest branch of the armed services. The Trump Administration is seeking $72 million from Congress in order to create this new branch containing 15,000 members with an annual cost of approximately $500 million. The Trump Administration has stated that the Space Force will “initially realign existing space forces and materiel from the military services and will scale up responsibly and deliberately over the next several years.” In order to have a new branch of the military, the approval of Congress is needed. In addition to the Space Force, the Trump Administration is also seeking $149 million for the Space Development Agency in FY2020 which will “foster innovation by leveraging the thriving domestic commercial space sector.”
Funding for Border Wall: The Trump Administration is seeking $8.6 billion to build a wall along the border between Mexico and the United States. These funds come from the request for the $750 billion for Defense spending. As President Trump stated in his budget message in, “A Budget for a Better America”,
As President, my highest duty is the defense of our Nation—which is why finishing the border wall is an urgent national priority. . . The American people are entitled to a strong border that stops illegal immigration . . . My Budget continues to reflect these priorities, and I look forward to working with the Congress to finish the border wall.
The key question is where the funds for the $8.6 billion request will come from when Congress turned down the Trump Administration’s earlier request for $5.7 billion for the border wall.
Homeland Security Department: The Department of Homeland Security (DHS) will see a noticeable increase of 7.4 percent in its budget for FY2020. DHS will have a rise in its budget from $48.1 billion in FY2019 to $51.7 billion in FY2020. Among the items that the FY2020 will provide is
to implement the President’s direction to secure the U.S. Southwest border. The
Budget requests $5 billion to construct approximately 200 miles of border wall
along the U.S. Southwest border; provides $192 million to hire 750 Border Patrol
agents, 171 CBP Officers, and support staff; and invests $367 million in CBP aircraft,
vessels, surveillance technology, and equipment.
The problem with the budget is that for the years 2020 to 2029, the total amount of deficits will be $7.259 trillion, or an average of $725.9 billion annually. If the budget proposal is examined closely, the Trump Administration does not have a surplus projected for the next decade.
There are a number of departments that will see substantial cuts in their budgets for FY2020:
Department of Agriculture: Farmers will see a severe drop in farm subsidies and crop insurance of up to $28 billion in the next ten years. For FY2020, the Trump Administration wants to cut the department’s budget by 14.8 percent or by $3.6 billion. Farmers could see a reduction in crop insurance premium subsidy to 48 percent from 62 percent. According to the highlights statement by the Trump Administration, the FY2020 budget is
. . . eliminating subsidies to higher income farmers, and reducing overly generous crop insurance premium subsidies to farmers and payments made to private sector insurance companies. The Budget includes a bold set of proposals, including those that would reduce the average premium subsidy for crop insurance from 62 percent to 48 percent and limit commodity, conservation, and crop insurance subsidies to those producers that have an Adjusted Gross Income of $500,000 or less.
The Trump Administration budget also includes reduction in farm subsidies which it deems as too high:
In addition, the Budget proposes reductions to overly generous subsidies provided to participating insurance companies by capping underwriting gains at 12 percent, which would ensure that the companies receive a reasonable rate of return given the risks associated with their participation in the crop insurance program.
The problem here is that with cuts in the budget for the Department of Agriculture, there will ultimately be less assistance to America’s farmers. The problem then becomes how many of these farmers will still be able to operate their farms and the ones that still exist will need to pass on the higher costs they incur to American consumers.
Department of State: If there is one department that has been hit hard in the past Trump Administration budgets and continues to get significantly whacked now is the State Department. According to the FY2020 budget proposal, the State Department will see a 23.3 percent reduction in its funding or a loss of $13 billion from FY2019. The Trump Administration has a history of making drastic cuts to the State Department. For example, the FY2018 budget proposal saw a 29 percent reduction in the State Department’s budget. While Congress did not allow such a drastic drop, such cuts show the Trump Administration’s priorities for the future of the State Department and its programs.
Medicare and Medicaid: The Trump Administration is making a serious attempt to cut Medicare funding by $845 billion in the FY2020 budget proposal. Regarding Medicaid, the budget would have the state governments become more responsible by transforming it into “block grants” as well as stricter eligibility requirements. This means the states would receive a lump sum from the federal government and then decide how, when, where, and to whom the funds should be allocated. This means a reduction of $241 billion in Medicaid spending in the next ten years by the federal government and possibly increased funding by state governments in order to make up the difference. The Trump Administration is also looking to impose a national work requirement on Medicaid recipients. In sum, under the Trump Plan, there would be cuts of $1.5 trillion to Medicaid in the next decade while totally eliminating the Medicaid expansion under the Affordable Care Act (ACA). The block grants would replace this cut but at a reduced amount of $1.2 trillion for what the Administration is calling the “Market Based Health Care Grant” or the aforementioned block grant to the states. The ironic aspect of the cuts to Medicare and Medicaid is that while Donald Trump was running for president, he promised his administration would never touch Medicare, Medicaid, nor Social Security.
Among the other departments and programs that would be cut or eliminated under the FY2020 budget proposal are:
- Social Security: $25 billion reduction over the next decade
- Supplemental Nutrition Assistance Program (SNAP): $220 billion cut over the next ten years
- Temporary Assistance for Needy Families: $21 billion reduction in a program for the nation’s poorest
- Endangered Species Funding: cut by 50 percent
- The Land and Water Conservation Fund: reduced by 95 percent
- The Great Lakes Restoration Initiative: funding reduced from $300 million to $30 million
- Climate change prevention and research: funding cut by 90 percent
- Corps of Engineers: cut funding by 31 percent
- Environmental Protection Agency (EPA): cuts of 31 percent
- National Park Service: cuts totaling over $494 million
- Institute of Museum and Library Services: permanent elimination
Congress and Trump will fight it out
President Trump and Congress will battle it out over the budget proposal, as usual. But this time it will be vastly different since Trump must now deal with a Congress controlled by the Democrats who will fight tooth-and-nail for social programs that they do not want to fall through the social safety net. How much Donald Trump is willing to concede remains to be seen, but just by making this budget proposal shows his priorities and values for the United States.
Arthur Guarino is an assistant professor in the Finance and Economics Department at Rutgers University Business School teaching courses in financial institutions and markets, corporate finance, investments, and financial statement analysis. The first half of his career was spent in the financial services industry working for corporations such as TIAA-CREF, Met Life, and The Bank of New York. He writes articles dealing with finance, economics, and public policy.
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Date: March 22, 2019
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