White House Boosts Its Proposed Deficits

Blog Post
Monday, July 16, 2018

The Trump administration’s new budget update shows the federal deficit rising to $890 billion for the current fiscal year and soaring well past $1 trillion in Fiscal 2019 -- despite the administration’s overly optimistic economic projections and its proposed spending cuts that are unlikely to actually occur.

Compared to the proposed budget that the White House released in February, the update -- known as the Mid-Session Review -- shows higher deficits for each of the next 10 years under the president’s policies.

The administration raised its deficit projection for the current fiscal year, which ends Sept. 30, by $17 billion. The new Fiscal 2019 deficit of $1.085 trillion is $101 billion over the February estimate.

Total deficits for 2019 through 2028 are now pegged at $8 trillion, which is $926 billion higher than envisioned in Trump’s proposed budget in February. These projections are still lower than the $9.5 trillion in total deficits projected in the Congressional Budget Office’s May analysis of the president’s budget.

That earlier budget was already problematic. As The Concord Coalition said in February, the president's plan “falls far short of what is needed to put the nation’s finances on a sustainable path, particularly in light of the deficit-financed spending and tax breaks” that Trump and Congress had recently agreed upon.

Robert L. Bixby, Concord’s executive director, called the February budget "essentially a confession of failure on dealing with the nation’s fiscal challenges.” He noted that in 2017 the president’s budget at least set a goal of balancing the budget within 10 years.

“The depth of the budgetary hole that has been dug over the past year is made clear by the fact that the administration could not produce a balanced budget even with unrealistic growth assumptions and scoring gimmicks,” Bixby said.

The Mid-Session Review glosses over such concerns. Its summary is largely devoted to praising various administration policies, notably the tax cuts that Trump championed. But those cuts require additional government borrowing.

The report also presents Trump’s restrictive trade policies as promising large economic benefits for the United States. Many mainstream economists, however, consider trade restrictions and trade wars as dangers to economic growth.

The administration’s budget update skims over Trump’s proposed deficit increases for the coming decade. In addition to praising deficit-financed tax cuts, it excuses the president’s approval of wide-ranging deficit-financed spending legislation this year by saying it was all necessary to properly fund the military.

The administration says its budget plan would cause the federal deficit to rise from 4.4 percent of GDP this year to 5.1 percent of GDP in Fiscal 2019. That is a troubling increase, particularly during a strong economic period when government deficits should be falling rapidly.

After next year, the administration says, annual deficits will begin to fall relative to GDP. That would be a positive. But the administration’s numbers are based on economic growth projections that, as the budget update acknowledges, are “notably higher” than forecasts by other government and private analysts.

The report’s explanation: “The administration’s more optimistic forecast for real GDP growth can largely be accounted for by its expectation of higher productivity growth in the medium to long run, and by the administration’s assumption that the president’s policy proposals will be enacted.”

Even Republicans on Capitol Hill, however, have shown little enthusiasm for many of the president’s budget proposals. In addition, Trump wants additional spending in some areas and has been talking about additional tax cuts that would presumably be deficit-financed.

Nor does rapid productivity growth appear to be a slam dunk. According to the CBO’s recent long-term budget outlook, productivity will increase at an annual rate of just 1.2 percent over the next three decades — well below the average annual growth rate of 1.5 percent since 1950.

Unfortunately, as a Concord Coalition issue brief discussed earlier this month, federal investments that could boost productivity growth have been in decline.

The Mid-Session Review insists that the administration “continues to work toward getting the nation’s fiscal house in order.” But the bottom-line deficit figures in the report suggest otherwise.