Trump submits a record budget

Donald Trump unveiled a record $4.7tn annual budget that boosts military spending and includes $8.6bn for his US-Mexico border wall, setting the stage for a battle with Democrats that could lead to another government shutdown later this year.

Background

The United States federal budget comprises the spending and revenues of the U.S. federal government. The budget is the financial representation of the priorities of the government, reflecting historical debates and competing economic philosophies. The government primarily spends on healthcare, retirement, and defence programs. The non-partisan Congressional Budget Office provides extensive analysis of the budget and its economic effects.

The budget has led to an increase in the government debt of the US due to deficit financing as a policy tool since the late 1950s. The United States has the largest external debt in the world and the 14th largest government debt as % of GDP in the world.

Analysis

Mr Trump’s budget, which was submitted later than required because of the five-week partial shutdown that ended in January, earmarks $750bn for defence, while cutting non-military spending by 5 per cent from caps that Congress imposed in 2019. 

The cuts would hit departments such as the Environmental Protection Agency and also foreign aid — two targets of the Trump administration. The budget includes $4.8bn in spending to help combat the opioid epidemic in the US.

Democrats in Congress insisted that they would oppose funding in the 2020 fiscal budget for the wall, which they view as a pointless vanity project designed to help the president win re-election. Unless a compromise is reached by the October 1 budget deadline, a government shutdown looms.

Assessment

Our assessment is that the U.S. is facing a series of long-term financial challenges, as the population of the country ages and healthcare costs continue growing faster than the economy, leading to the debt-to-GDP ratio exceeding 100% by 2030.  We believe that a more fiscally conservative, and innovation-centric budget is required to normalise the US’s adverse long-term financial projections. We also feel that the budget is dead on arrival at Congress and there is a strong possibility of yet another government shutdown once the budget is rejected