President Trump’s Fifteen-Year Plan to Balance the Federal Budget: It Kicks the Can Down the Road

March 12, 2019

 Those of you who have read this blog over the last two years know that I am a staunch supporter of President Trump’s policies, especially with regard to border security and the economy. The President’s recently introduced plan to balance the federal budget over the next fifteen years may be the exception. The plan estimates economic growth to average near 3% over the next ten years. It is my belief that those estimates are pure speculation and therefore, not at all realistic. By proposing this plan, the President is doing exactly what his recent predecessors have done. He kicks the can down the road.

The President’s economic growth projections are characterized as overly optimistic by many economists, including Fed Chairman Jerome Powell. In addition, The Congressional Budget Office (CBO) estimates that government revenue over the next ten years will be $2.8T less than the projections put forth in the President’s plan. This means that the $3T in spending cuts cited in the President’s plan would be eaten up by the shortfall in revenue. In addition to the optimistic revenue projections, there are other compelling reasons why the President’s plan just doesn’t cut the mustard.

Entitlements make up slightly less than two-thirds of the entire federal budget, or about $2.9T. Anyone who professes to be in favor of reducing government spending, in any meaningful way, needs to either cut these entitlements, or at least lower their rate of growth over an extended period of time. Since the national debt became a serious issue, no administration has had the political courage to address this problem, let alone initiate policies to correct it—and neither has Congress. The obvious and the correct reason is politics. Senior citizens are the largest group of recipients who benefit from these government entitlements and any elected official who would vote to reduce these benefits risks be voted out of office. What most people fail to understand is that the reason for lowering the rate of growth of these entitlements is to keep these funds solvent. Both Social Security and Medicare take in less money in payroll taxes than is currently being paid out in benefits. Obviously, this cannot go on forever.

Another government expense, which not only cannot be cut but will continue to increase, is interest expense on the national debt. This line item will grow to $1.5T—$2.0T within the next fifteen years. It would be difficult, if not impossible, for the country to pay this amount of interest without making cuts to other areas of the budget. Interest expense is very unique as far as government expenditures go. It is market-driven, non-negotiable, non-partisan, and it has to be paid on time, every time, or the country would go into default. Within the next ten years the country will be forced to pay an additional $1T per year in interest expense. In return for that expenditure, the government gets to use the country’s national debt of $22T for one year. That’s it. The country would receive no new infrastructure, no school aid, no additional border security, and no additional spending on national defense.

During the next fifteen years our government will spend an additional $12T, over and above the current level of $363B in the FY 2019 federal budget. Since the federal budget is currently in yearly deficit, all of this additional interest would need to be borrowed. Add to that the current deficit of $1T per year, and our national debt will balloon to $45T—$50T by the end of this budget plan.

Whenever there is a conversation about cutting government spending, liberals—or in this day and age, socialists—want to cut military spending. Given the fact that our two main adversaries, China and Russia, are improving and expanding their military capabilities every year, it would be foolish for America not to at least keep up with their military expansion. It would also be a serious threat to the safety and national security of this country. After eight years of budget cuts to our military during the Obama Administration, President Trump was forced to play catch up. This policy of rebuilding our military has become critical of late because several high-ranking military leaders have stated publicly that if the US were to engage in an armed conflict with China, we could lose. We should all take a minute and think about what that means and just exactly what the consequences of that happening would be. To me, this is more than sufficient reason to not cut military spending.

Military spending for fiscal year 2020 is projected to be $750B and interest on the debt is projected to be $462B. This leaves $2.9T for entitlements and $600B for other discretionary spending from which to cut. The President’s plan to cut $300B per year for ten years will come from the following areas: The plan calls for cuts in Medicare, food stamps, and the Housing and Urban Renewal Department. There will also be cuts in cabinet-level departments and in some government agencies. These planned cuts will be in departments and agencies such as the EPA, NPR, NEA, the Departments of State, Transportation, Energy, Agriculture, and Interior, among others.

Even with these cuts, the federal budget will still increase by about $300B per year. This is based on the CBO’s estimate that revenue for the ten-year period will be $2.8T less than the President’s plan. Also, the President plans to invest roughly $200B in infrastructure. The cost of interest expense will also increase drastically. These increases in spending will wipe away any increases in revenue derived from the 3% yearly increase in economic growth. Since spending levels are based in part on the amount of projected revenue, any shortfalls in revenue will also have to be borrowed.

I have a very close acquaintance who is the CFO of a small company in New England. When I say a small company, I’m talking about a company with annual sales of $150M to $200M. One of his duties is to prepare yearly budgets and other projections for the company. In his professional opinion any budget or other forecast that goes beyond three years would be unreliable at best and any business projections beyond that point would be pure speculation. That said, the President’s plan to balance the budget in fifteen years would also have to be characterized as pure speculation. In addition, if my estimates of where the national debt will be in fifteen years are accurate, this plan will be too little too late.

At the end of this fifteen-year period, the national debt will be at a minimum level of $37T. This assumes budget deficits of $1T per year for the next fifteen years. I see no reason why yearly deficits should decrease. If anything, with interest expense increasing at a increasing rate, there is, in my view, a substantial likelihood that the national debt will be even higher—possibly in the range of $45T to $50T.

Politics is the main reason for these never-ending budget deficits and perpetual increases in the national debt. In today’s political environment, politicians make promises to their constituents to give them “free stuff.” If you watch TV long enough, one presidential candidate after another from the Democrat Party has promised free healthcare for all, a guaranteed job for everyone who wants one, free tuition at public colleges and universities, and safe affordable housing for everyone, just to name a few. First of all, every one of these candidates knows that if all the above promises were passed into law, the federal budget would triple and so would the annual deficit. If spending were increased to this level, taxes would also need to triple. This would still leave a budget deficit of well above $3T. My point in all this is that all these promises are nothing more than political rhetoric and BS that is designed to con the citizens of this country who are ignorant and uninformed. I use the words ignorant and uninformed because they believe that the so-called “free stuff” is actually free. They honestly think that the government has unlimited resources and is capable of providing all the benefits mentioned above. That kind of thinking is pure fantasy and downright dangerous. If these types of programs were put into law, the economy would tank, the national debt would explode, and the country would go into bankruptcy. The President’s fifteen-year plan cannot account for the possibility of this kind of legislation being passed. This is another reason why this type of plan is unrealistic.

My estimate of the national debt growing to $45T—$50T assumes no Medicare for All and no Green New Deal (GND), which includes Medicare for All. There are numerous estimates that the GND will cost upwards of $9T per year for ten years. This plan, depending on how much individual and corporate income taxes are increased, could raise the national debt by as much $7T per year. In my opinion, it would be extremely doubtful that the country could survive with that level of debt.

President Trump is following the lead of his recent predecessors. He has created a plan to balance the federal budget over the next fifteen years. By the end of this period at least two more chief executives will have been sworn into office. These future presidents will have the authority to propose their own spending plans and completely reject the plan put forth by President Trump. The President was aware of this when his plan was being prepared. He also knew that it could be altered or discarded at any time after he left office. By not taking steps to cut spending while in office, he has followed the lead of his predecessors and has kicked the national debt can down the road.

The final reason that I think that the President’s plan is inadequate is the American public. A large percentage of the American public (I would estimate about 40%) are of the opinion that everything is fine and that life as we know it will go on for generations to come. Belief in this fantasy is not a function of one’s economic status. There are people from all income levels who believe this. Many of these people make good livings and are able to live the American Dream. Others in the lower income brackets live by working at low-skilled, low-wage jobs, and by receiving government subsidies. This second group doesn’t care where the subsidies come from, nor do they care if the government needs to borrow the money to pay for them. As far as they are concerned the government has unlimited resources and can pay any amount of money for anything at any time. The first group of Americans mentioned above know or at least suspect that the issue of our increasing debt is a serious problem, but are too wrapped up in their personal lives to worry about it. Their feeling is to let the government handle it. Really? That is like putting Dracula in charge of the blood bank. So there you have it. A large portion of America’s population want government largess and don’t care how the government pays for it. Another large section of the population knows that there is a problem, but they are too involved in the day-to-day issues of their lives and don’t know what they can do about it. This is the situation as I see it. In my opinion, the first step is that people need to be made aware of the problem. Once the public is made aware of the problem, it is then up to them to put pressure on their elected officials to make the appropriate changes. If after becoming aware of the approaching crisis, they still fail to act, the voting public has to take ownership of the problem and the consequences.

I give the President credit for creating this long-term plan to balance the federal budget. Unfortunately, given its fifteen-year term, the plan is impractical and does little to solve the issues of trillion-dollar deficits and a rising national debt. I fully understand the political restraints imposed on the President by Congress and by the voting public at large. It has become business-as-usual in this country for politicians to promise “free stuff” to their voters. Once the “free stuff” and entitlements are given, it is difficult, if not impossible, to take them away.

Roughly 63% of the entire federal budget is spent on entitlements. That is evidently not enough. Politicians keep promising more and more budget-busting programs that we can’t pay for. The worst part is that these politicians, who are completely devoid of ideas of how to solve the problems that the country is facing, continue to promise more and more “free stuff.” It’s all they have to offer. Unfortunately, more times than not, that will be enough to get elected and that is the fault of the uninformed voter. These people allow themselves to be bought off by politicians who promise to deliver “free stuff.” This will continue even though the politicians, and in some cases even the people who are receiving this “free stuff,” know that these additional giveaways are not in the best interest of the country. As far as they are concerned, the Government of the United States Has Unlimited Resources.