What Trump’s Budget Projects for the Economy & the National Debt
Does the national debt need to be addressed?
by Causes | 2.13.20
The annual federal budgeting process for the upcoming year reached a notable milestone this week when the Trump administration released its budget proposal for fiscal year 2021. The budget blueprint includes detailed projections for economic growth, government spending, and the national debt ― let’s take a look at the numbers.
The White House budget projects that the U.S. economy’s gross domestic product (GDP) will grow at a rate of 2.8% in 2020, a slight uptick from an estimated 2.4% in 2019 and close the 2.9% growth the country achieved in 2018. That would put the U.S. economy at an all-time high GDP figure of $22.494 trillion for the 2020 calendar year. Going forward, the White House projects 3% economic growth each year through 2025, when GDP would hit $28.822 trillion. It then projects growth slowing back to 2.9% in 2026 and 2.8% from 2027 through 2030, when the economy would be $36.598 trillion. For historical context, this chart from USAFacts shows annual U.S. GDP from 1930 through 2018:
It’s worth noting that the White House’s projections are more optimistic than those compiled by the Congressional Budget Office (CBO), which forecasts that GDP growth rates will slow from an estimated 2.3% in 2019 to 2.2% in 2020, before slowing further to 1.9% in 2021 and remaining in the 1.6% to 1.7% range through 2030. That GDP growth pattern would be more similar to the prevailing growth pattern over the past decade, as this chart from USAFacts shows with GDP changes between quarters dating back to 2011:
The overall U.S. national debt exceeds $23 trillion as of 2020, but the figure that is commonly reported by government agencies is the debt held by the public, which excludes debt held in government accounts. The White House & CBO are in relative agreement on the level of debt held by the public in 2020, which the former puts at $17.881 trillion (80.5% of GDP) and the latter pegs as $17.855 trillion (80.8% of GDP).
That’s where the similarities between the two projections end in terms of the national debt. The White House forecasts the amount of debt held by the public rising to $23.892 trillion in 2030, when it would be 66.1% of GDP, whereas the CBO anticipates debt held by the public would total $31.447 trillion (98.3% of GDP).
The discrepancy is because Trump administration’s budget is based on the assumption that reforms to Medicare (and to a lesser degree, Medicaid) could be implemented to restrain the growth of spending ― in turn reducing budget deficits and the growth of the national debt. The White House’s proposal would bring the federal budget into balance over the course of 15 years, gradually shrinking annual budget deficits from a projected $1.083 trillion in 2020 to $261 billion in 2030 before achieving a balanced budget in 2035.
Reversing the growth of the national debt, which the CBO attributes to increasing spending on Medicare & Social Security as America’s population ages in addition to the rising cost of interest payments to service the debt, would reverse a trend that has accelerated in the last decade. As this chart from USAFacts shows, federal debt as a percentage of GDP exceeded 50% for the first time in the 21st century in 2009 and has remained above 70% since 2012.
Will the president’s budget be enacted?
The White House’s FY2021 budget proposal will almost certainly go the way of essentially all other presidential budget proposals that have been offered since the current budget process took effect in the mid-1970s ― which is to say it won’t be seriously considered by Congress.
The legislative branch holds the power of the purse, and Congress has historically been averse to spending much more time on presidential budgets than a few perfunctory committee hearings. This is particularly true for this year’s budget proposal, given that Congress already enacted topline budget figures for FY2021 in the Bipartisan Budget Act of 2019, including:
- An overall discretionary budget of $1.375 trillion;
- $740.5 billion in defense discretionary spending; and
- $634.5 billion in non-defense discretionary spending.
— Eric Revell
(Photo Credit: iStock.com / omersukrugoksu)
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