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Don't Expect Any Spending Cuts Under Trump

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Tags Big GovernmentTaxes and SpendingU.S. Economy

10/03/2018

Even before Trump was elected it was already clear that no one should expect him to cut spending and rein in annual budget deficits. Trump has always been about buying votes with more and more spending.

Moreover, there is no evidence that Republicans are any more fiscally restrained than Democrats when in control of the federal government. After all, when the Republicans controlled both the White House and all of Congress, from 2003 to 2007, government spending grew at one of the fastest rates in decades.

With the end of fiscal year 2018, and with Trump's support for a historically large spending hike for defense-related departments, we're getting a sense of Trump's fondness for spending as president. While true that, so far, Trump doesn't represent a sizable departure from the spending trends of the previous administration, he nevertheless is confirming for us that budget cutting is not part of his agenda.


 

Moreover, the spending increases we're seeing now are coming in a boom period. As the huge spending increase of 2009 has shown — spending that can be blamed on both Bush and Obama — we should expect big spending increases in times of recession.

2018: A Big Year for Government Spending

Fiscal year 2018 ended last month, and during that period, the US government added more than a trillion dollars to the national debt.

As of October 1, 2018, the first day of the 2019 fiscal year, the Federal government's debt outstanding totaled $21,606,948,383,546.28. On year earlier, the total was $20,244,900,016,053.51.

At 21 trillion dollars, the US national debt is, of course, at the highest level it's ever been.

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Source: TreasuryDirect.gov

Not surprisingly, given generally stable federal receipts, debt is being driven by federal spending which is continuing at a rapid pace.

In the 2018 fiscal year, the OMB estimates federal spending topped $4.17 trillion, which is an increase of 4.8 percent over fiscal year 2017. That's the second-highest growth rate in the past five years, and the third highest in the past decade.

2018's spending growth rate also was larger than the growth rate recorded for seven out of eight budgets signed by Democrat Bill Clinton. If the OMB's estimates for 2019 turn out to be true, spending growth will hit a ten-year high of 5.6 percent in 2019.

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Source: Table 4.1, OMB Tables

Indeed, spending growth shifted upward significantly during and after the 2002–2003 recession. Spending patterns under Trump signal no change in the general pattern set since 2002:

spending_2018_trend.PNG

Source: Table 4.1, OMB Tables

None of the biggest spending programs — those that contribute the most to federal spending — have seen cuts. Last week, Trump signed into law a very large increase in defense spending. Moreover, the major departments for welfare programs continues to see increases. And while we're likely to hear about how welfare programs are suffering "cuts" under the Trump administration, the truth is these departments are likely to see increases through the 2019 fiscal year. Neither Social Security nor the Health and Human Services department are facing cuts.

hhsspending.PNG
 

Source: Table 4.1, OMB Tables

In the short term, of course, this is a winning political strategy for Trump. Both military and welfare programs continue to be generally popular among Americans, and there is little widespread political will for cuts.

Moreover, rising debt levels appear to be of little concern to anyone in Washington. As Bloomberg reported on Monday:

Trump is proving as indifferent to fiscal orthodoxy as to any other kind. The spending measure he signed on Friday, along with the one approved in March and December’s tax bill, amount to the biggest stimulus outside recessions since the 1960s. They sailed through a House led by the supposedly hawkish Paul Ryan, who’s due to step down in January without much progress on his goal of reining in so-called entitlements like social security — an illustration of how Republican deficit scolds are in retreat.

On the Democratic side, the reaction that’s firing up the grassroots isn’t “How could you do that?’’ It’s: “Why can’t we do that?’’

The seriousness of the situation is unlikely to come to the fore until recessionary pressures for more "stimulus" push spending to newly unprecedented levels, as happened in 2009. This in turn will lead to enormous deficits which will in turn require more borrowing. That may put upward pressure on interest rates. If that occurs, payments on the national debt will increase, eating up larger and larger parts of the federal budget. Only then — when sizable amounts of government funds must be moved out of welfare programs and military programs and into debt payments — will the seriousness of the debt become apparent.

Until then, it looks like Washington is happy to ignore the problem.

Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for Mises Wire and The Austrian, but read article guidelines first. Ryan has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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