WASHINGTON – President Donald Trump delivered his fourth budget to Congress on Monday, and the message once again was chop, chop, chop.
Except when it was spend, spend, spend.
The military and other programs that reflect Trump’s campaign priorities will get a considerable boost in spending, while other domestic programs will see steep cuts.
Education? Chop. Foreign aid? Chop. The EPA? Chop, chop, chop.
The Trump administration often points out that hard-working Americans must make tough budget decisions every day and that the federal government is just like you – struggling to make ends meet and forced to live within its means.
Except it’s not. And it doesn’t.
Trump budget, 4.0
As in previous years, the Trump budget 4.0 is landing with a thud. In Washington-speak, it likely will be dead on arrival. (More about that later.)
Trump’s $4.89 trillion spending plan – the final budget of his first term in office – calls for increases to military spending and steep cuts to several domestic programs, a reflection of his campaign priorities as he asks voters to return him to office for another four years.
It seeks $2 billion to build about 82 miles of additional wall along the southern border, the latest contribution to the 1,000-mile project that was one of Trump’s signature promises during the 2016 presidential campaign.
Congress gets its say
One of the big ways the federal budget differs from your household spending plan: You and your family develop your budget without seeking input from 535 other people.
That’s not how it works in Washington.
The budget the president sends to Congress is just a starting point, a way for the administration to spell out its spending priorities for the coming year. Lawmakers have their own ideas about how federal dollars should be spent, and since they seldom line up closely with the president’s vision, Congress usually shelves the president’s budget proposal and writes its own.
The process becomes even more complicated when an opposing party is in charge, as it is this year. Democrats led by Speaker Nancy Pelosi control the House, while Republicans still hold the Senate and the White House.
Just how difficult it can be to pass a spending plan under divided government was illustrated last winter when a budget impasse triggered a record-setting, 35-day government shutdown.
The president’s budget is usually DOA the moment it reaches Congress. Given the power split, that will be especially true again this year.
Options you don’t have with debts
Like many Americans, the federal government spends more money than it has. So, like many Americans, it borrows money to pay its bills.
Lots of money.
The national debt surpassed more than $23 trillion for the first time last October, a milestone that experts warned is further proof the country is on an unsustainable financial path.
To put that amount into perspective: The median U.S. household income was $61,372 in 2017, according to the Census Bureau. If every American man, woman and child earned that median wage and gave every penny of it to the government, the total still wouldn’t pay off the national debt.
The federal deficit – the gap between the government’s income and expenses – approached $1 trillion last year, the Treasury Department reported last fall. The deficit grew to $984 billion in the fiscal year that ended Sept. 30. That was a 26 percent increase from the previous year and a 50 percent jump since Trump has been in office.
Analysts say nearly half of the increase can be traced to the sweeping $1.5 trillion tax cut that Trump spearheaded and that took effect in 2018, as well as a two-year budget deal that increased government spending by about $300 billion. Growth in Social Security, Medicare and other expenses also swell the deficit.
Many struggling Americans are forced to contend with their own budget deficit and are deep in debt.
Consumer borrowing, including credit cards, rose last year by $22.1 billion, according to figures released last week by the Federal Reserve. Consumer credit hit a record $1.1 trillion last year.
But the federal government has options that average Americans don’t.
If it needs more money, it can raise taxes. If it needs to borrow, it can get much lower interest rates than consumers can. If it hits its borrowing limit, it can simply raise that ceiling.
Individual Americans eventually have to pay off their creditors. When you die, your estate settles your debts. Since the federal government doesn’t go away, neither does its debt. It lives on and keeps accumulating.
Why you should care
For average Americans, the federal budget deficit may seem like a massive abstract number that has no effect on their daily lives.
It does. Or at least it can.
Higher deficits could drive up borrowing costs for U.S. households and businesses. When the government borrows money to pay its bills, it issues Treasury notes. As the supply of Treasurys increases, their prices fall and yields rise to attract more buyers, assuming demand is steady. Those higher rates can ripple across the economy, nudging up rates on mortgages and other loans.
Currently, 10-year Treasury rates are at a historically low 1.6%. That’s because in an uncertain global economy, Treasurys are viewed as a safe bet. While countries such as Turkey, Argentina and Italy face financial crises, no one expects Uncle Sam to default on debt. But as the national debt swells and economic conditions change, rates eventually could rise to levels that discourage consumer and business borrowing, hurting the economy.
That means the federal government can run up outsize deficits far more easily than ordinary households, which would face credit limits and higher interest rates if they did the same.
That may not always be the case, especially if $1 trillion deficits continue to pile up and Congress takes no steps to trim them over the longer term. If investors start worrying about that, Treasury rates – and borrowing costs across the economy – could begin to edge higher.
Another reason to fret about the deficit: If the economy slides into another recession, Congress may be less likely to pass a big stimulus to help pull the country out of the doldrums if the package adds to an already-yawning budget gap.
That could mean more layoffs, fewer job openings and smaller raises for American workers.
Yes, the national debt affects you
One of the many ways it impacts you is how much you earn.
Debt not only suppresses economic growth, it also suppresses future wages. The Congressional Budget Office projects that average income in 30 years will be $5,000 less per year if the national debt continues its trajectory.
That means average income for a family of four will drop by $16,000 over the next three decades if debt rises as projected, according to the Peter G. Peterson Foundation, a nonpartisan organization dedicated to addressing the country’s long-term fiscal challenges.
If that happens, you’ll have less money to spend on necessities such as food, gas and clothing or to put extra money in your savings account or 401(k).
Rising debt and deficits can lead to higher interest rates. Higher interest rates mean it will cost more to borrow money to buy a house or a car. Paying for college tuition or starting your own business will become more expensive.
Higher interest rates affect credit card purchases, so expenses such as buying gas or groceries or even going on vacation will cost more.
Programs such as food stamps and unemployment benefits that help the most vulnerable in society could face cuts if the government has less money to spend.
It may be more difficult to prop up financially strapped programs such as Medicare, which is projected to run out of money by 2026, and Social Security, which is likely to be insolvent by 2034, unless benefits are cut or other steps are taken to shore up the programs.
“The deficit should matter to anyone who cares about the future of America,” said Michael A.Peterson, CEO of the Peterson Foundation. “High and rising debt hurts our ability to build the future we want for the next generation because interest costs have become the fastest growing part of the federal budget.”
Interest on the debt will average $87,000 per person over the next 25 years – nearly four times the average student loan balance for a person under the age of 30. “That’s not good for the budget, our economy or our nation’s many priorities,” Peterson said. “Failing to manage this debt problem now makes it harder for all Americans down the road.”
If the United States continues on its trajectory, interest payments on the national debt will amount to the single largest government program within three decades, according to the nonpartisan Committee for a Responsible Federal Budget.