Trump’s 2020 Budget takes its cues from Presidents Reagan and Clinton
President Trump recently submitted his budget plan for fiscal year 2020. Trump’s 2020 budget plan calls for a 7% increase in spending, bringing the budget total to $4.7 trillion. The government projects a tax revenue of 3% to $3.6 trillion in total. That would result in the Federal deficit reaching $1.1 trillion. Given that the public debt already exceeds $22 trillion, is this actually a good budget?
President Trump has made a number of promises. He said his economic policies would stimulate economic growth, which was his top priority. He also said he would reduce tax rates, rebuild the military and put the country on a path to balance the budget. While growth continues to accelerate, tax rates have been reduced and the military is being rebuilt. Hence, the deficit continues to grow rather than shrink. How does all this square with the vision presented in Trump’s 2020 Budget?
Economic growth is the number one priority of Trump’s 2020 Budget.
Since the growth was his top priority, Trump looked at past government budgets put in place when the economy experienced high growth rates. In planning his own budget, he looked back specifically to successive budgets put together under Presidents Reagan and Clinton for guidance.
President Reagan cut taxes for all Americans, including the wealthy. He rebuilt the military and tried to control government spending. After his tax cut, the economy went on a massive growth spurt, with America’s annual growth rate in 1984 exceeding 7%. Unemployment fell, inflation fell and an era of economic prosperity followed. However, the budget deficit exploded.
Government spending was clearly the problem since tax revenue increased every year following the tax rate cut. But spending increased at a much faster rate despite Reagan’s attempt to control it.
President Clinton experienced sluggish economic growth during his first term in office. But in 1996, he and the GOP-led House cut the capital gains tax rate from 28% to 20%. Working with a Republican Congress, his budget also held the line on government spending. Additionally, he reformed the welfare system with the goal of transforming it into a system of temporary assistance, not a permanent dole.
In his 1996 State of the Union speech, Clinton boldly declared, “The era of big government is over.” His policies bore this out, resulting in tax revenue increasing by nearly 30% over the four years while spending increased by only 10%. The end product of his effort was a US budget surplus and an annual growth rate of 4 ½% for each of the next four years.
Trump’s 2020 Budget largely follows Reagan’s and Clinton’s budget path
Trump saw that lower tax rates, smaller government, welfare reform and a strong military are what led to increased growth. So he modeled his 2020 Budget after the budgets put in place under Reagan and Clinton. Trump’s 2020 Budget proposes to keep taxes low, keep the military strong and reform welfarc. Additionally, his budget reduces discretionary government spending. So why, then, is the annual budget deficit increasing?
What about Social Security and Medicare?
In the President’s $4.7 trillion 2020 budget, more than 60% of revenues will be spent on Social Security, Medicare and Medicaid. Politically it may be impossible to reduce spending in those areas in Trump’s 2020 Budget. But eventually, our Federal government will ultimately run out of fresh opportunities to kick this can down the road. The entitlement problem needs a solution and has required one for quite some time. Unfortunately, all of the solutions seem to be unfair, at least the way Democrats and the media prefer to paint the picture.
It is a (quietly) accepted fact that Social Security and Medicare will be bankrupt within 10 to 15 years unless they are reformed. And soon. In the meantime, those programs will continue to increase government spending and will continue to add to the Federal deficit. Reforming these programs will prove extremely difficult. And the government can’t continue to raise taxes to stratospheric levels to cover the increased spending these programs will inevitably require.
Raising taxes further to save swollen entitlements accounts simply won’t work.
The Social Security tax is already 12.4% of the average American worker’s wages. The Medicare tax is 2.9%. That’s more than 15% of wages that already go into these programs, even though no fiscal relief for them is in sight. Add this number to the Federal income tax, plus some state and local taxes, and the tax burden, already too high, will soar higher still. Ultimately, to save those social safety net programs, spending will have to be cut.
But at this point, there is no fair way to cut spending. If that’s the case, then an optimum solution will be to find a policy that is the “least unfair.” There is only one solution.
The age to collect a Medicare benefit will have to rise as will the age to collect Social Security. The eligibility age was changed years ago for the Boomer generation, and the government will need to change it again for the current, rising generations. The eligibility age for both programs needs to increase to at least 70, and in the future likely up to 72 or 75. People are generally healthier today than before and they are living longer and longer as actuarial tables are bearing out. Raising the eligibility ages for Social Security once again to reflect this would result in more money going into the programs and less money being paid out against the revenue received.
Americans are living longer than ever, and age requirements for entitlements will require another revision.
Again, people are living longer already. Some argue that Americans born today may end up living to well over 100. So raising the Social Security and Medicare eligibility ages again seems reasonable and prudent. For most Americans, being 72 or 75 today is not the same as it was years ago. Look no further than the fact there are a number of candidates who’ve already thrown their hats in the ring to run for President of the United States — including President Trump — who are well into their 70s right. President Trump himself is 72.
Given that the entitlement programs are untouchable this year, President Trump’s 2020 Budget should help him achieve his goals. Except for that vexatious deficit problem. His 2020 opposition won’t think so, however. That will result in a fierce budget battle.
Let’s hope the American taxpayers ultimately win this battle.
Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years. @mbusler www.facebook.com/fundingdemocracy