President Trump unveiled a budget Monday that seeks $3 trillion in cuts over the next decade.
What a difference a week makes.
The president signed a bill authorizing increases in domestic spending to secure larger increases in defense spending last week. This followed a State of the Union address petitioning Congress for various spending hikes, including $200 billion in federal funds for a $1.5 trillion infrastructure plan. This week, he targets 12 departments for cuts.
The Departments of Agriculture (-16 percent), Commerce (-6 percent), Education (-10.5 percent), Energy (-3 percent), Health and Human Services (-21 percent), Housing and Urban Development (-18.3 percent), Interior (-16 percent), Justice (-1.2 percent), Labor (-21 percent), State (-26 percent), Transportation (-19 percent), and Treasury (-3 percent) all endure cuts. Defense (+13 percent), Homeland Security (+8 percent), and Veterans Affairs (+11.3 percent) receive increases under the plan.
Several harsh realities make slashing the federal budget necessary.
The government now spends more than $1.1 trillion on healthcare. This cost, which once accounted for a minuscule portion of the budget, now represents a piece of the federal pie larger than defense, Social Security, or any other slice. Healthcare expenses increase not necessarily with that federal pie but instead drives its growth. More significantly, the pricetag to taxpayers grows with the skyrocketing costs of healthcare in the surrounding society. The Office of the Actuary at the Centers for Medicare and Medicaid Services estimates that the healthcare bill for Americans reaches $5.6 trillion in seven years. That represents in excess of a fifth of the gross domestic product. If Americans pay more for healthcare, one can assume the American government pays more for healthcare.
This, of course, catalyzes massive deficits.
Our obligations eclipse our economy. The national debt fast approaches $21 trillion.
This fiscal matter this week caught the attention of Director of National Intelligence Dan Coates.
“The failure to address our long-term fiscal situation has increased the national debt to over $20 trillion and growing,” he told the Senate Intelligence Committee. “This situation is unsustainable as I think we all know, and represents a dire threat to our economic and national security.”
Neither ISIS nor the Chinese nor the North Koreans pose as large a threat to the United States as runaway spending. To quote Pogo, “We have met the enemy, and he is us.”
On a related matter, interest rates creep upward. Ten-year U.S. treasury rates have already increased from 2.3 to 2.8 percent. If interest rates on the $20 trillion national debt increase one percent, this means an increase in costs of $200 billion to servicing that debt. The stock market appears spooked. Legislators might follow their lead in showing caution in expenditures that wildly outpace revenues.
One need not go full-Jeremiah. The government posted a surplus of $49 billion for January. And the economy grew at a healthy clip in 2017. It figures, according the International Monetary Fund, to grow at a faster pace (2.7 percent) for 2018.
Still, with trillion dollar deficits looming for next year and the year after that, reining in spending seems not only in order but essential. Not everyone agrees.
Congressman Tom Udall (D-NM) described the president’s proposed cuts as “unconscionable.” The New York Times described the spending decreases as “nasty” in a headline. But even with the cuts, the budget projects deficits averaging more than $700 billion over the next decade.
What, really, is “unconscionable” and “nasty”?
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.