WASHINGTON – President Donald Trump’s interim budget manager has warned federal department heads as the administration prepares its budget for the coming year:
The ax will fall hard on the expense, so get ready to chop, chop, chop.
âHard-working American families make these kinds of tough decisions every day,â Russ Vought explained in an article posted to the website last month. RealClearPolitics. âThe president thinks Washington should be no different. “
To find? The federal government is like you, struggling to make ends meet and forced to live within its means.
Except no. And it is not.
Budget Trump, version 3.0
The Trump administration sent its third budget to Congress on Monday. As in previous years, the document lands with a thud. In Washington parlance, he will likely be dead on arrival. (More on that later.)
The spending plan calls for a 5% cut in overall spending, a 5% increase in the Defense Department’s budget and $ 8.6 billion for a border wall just weeks after Congress failed to approve the Trump’s earlier request for $ 5.7 billion for a wall.
“Get rid of the fat, get rid of the waste,” Trump said earlier Cabinet meeting. âI’m sure everyone at this table can do it.
Everyone except the Pentagon, Apparently.
Congress has a say
One of the main differences between the federal budget and your household spending plan is that you and your family budget without asking the advice of 535 other people.
This is not how it works in Washington.
The budget the president sends to Congress is just a starting point, a way for the administration to clarify its spending priorities for the coming year. Lawmakers have their own ideas of how federal dollars should be spent, and since they rarely align closely with the president’s vision, Congress usually puts away the president’s budget proposal and drafts its own.
The process becomes even more complicated when an opposing party is in the driver’s seat, as is the case this year. Democrats led by Speaker Nancy Pelosi control the House for the first time in eight years, while Republicans still hold the Senate and the White House.
The president’s budget is usually DOA by the time it reaches Congress. Given the distribution of powers, this will be especially true this year.
Options you don’t have with debt
Like many Americans, the federal government spends more money than it has. So, like many Americans, he borrows money to pay his bills.
A lot of money.
The national debt surpassed $ 22 trillion for the first time last month, a milestone that experts say is further proof the country is on an unsustainable financial path.
To put that amount into perspective: The median income of U.S. households was $ 61,372 in 2017, according to the Census Bureau. If every American man, woman and child made that median salary and gave every penny to the government, the total still wouldn’t pay off the national debt.
The federal deficit – the gap between government revenues and expenditures – increased by 77% in the first four months of the current fiscal year. It is expected to total $ 900 billion in this fiscal year and be near or above $ 1,000 billion over the next decade, up from $ 779 billion last year.
About 40 percent of the increase can be attributed to scanning $ 1.5 trillion in tax cuts that Trump led and which went into effect last year, as well as a two-year budget deal that increased government spending by about $ 300 billion. Growth in social security, health insurance and other spending is also inflating the deficit.
Many struggling Americans are forced to face their own budget deficits and are heavily in debt. Americans owe a record $ 1.04 trillion in credit card debt – against less than $ 854 billion five years ago, according to the Federal Reserve. On average, Americans owe $ 6,354 on credit cards issued by banks.
But the federal government has options that average Americans don’t.
If he needs more money, he can raise taxes. If he needs to borrow, he can get much lower interest rates than consumers. If he reaches his borrowing limit, he can simply increase that limit.
Individual Americans ultimately have to pay their creditors. When you die, your estate settles your debts. Since the federal government is not disappearing, neither is its debt. It lives and continues to accumulate.
Why you should care
To average Americans, the federal budget deficit can seem like a massive abstract number that has no effect on their daily lives.
It does. Or at least it is possible.
Higher deficits could drive up borrowing costs for American households and businesses. When the government borrows money to pay its bills, it issues treasury bills. As the supply of Treasuries increases, their prices fall and yields rise to attract more buyers, assuming demand is stable. These higher rates can spill over into the economy as a whole, pushing up mortgage and other loan rates.
The big caveat: Although Treasury rates rose as the deficit widened, they remained at historically low levels (currently around 2.6 percent). This is because in an uncertain global economy, treasury bills are seen as a safe bet. As countries like Turkey, Argentina and Italy face financial crises, no one expects Uncle Sam to default on his debt.
This means that the federal government can run into disproportionate deficits much more easily than regular households, which would face higher credit limits and interest rates if they did the same.
This may not always be the case, especially if the $ 1 trillion deficits continue to mount and Congress takes no action to reduce them in the long run. If investors start to worry about this, Treasury rates – and borrowing costs across the economy – might start to rise slightly.
Another reason to worry about the deficit: If the economy slips into another recession, which many analysts predict by 2020, Congress may be less likely to adopt a big stimulus to help get out of the crisis. country in the doldrums if the package is added to an already yawning budget gap.
That could mean more layoffs, fewer job postings, and smaller raises for American workers.
Yes, the national debt affects you
One of the many ways this affects you is how much you earn.
Debt not only suppresses economic growth, it suppresses future wages. The Congress Budget Office projects that the average income in 30 years will be $ 5,000 less per year if the national debt continues on its course.
This means that the average income of a family of four will drop by $ 16,000 over the next three decades if debt increases as expected, according to the Peter G. Peterson Foundation, a non-partisan organization dedicated to addressing the country’s long-term fiscal challenges.
If this happens, you will have less money to spend on necessities such as food, gasoline, and clothing or to put extra money in your savings or 401 (k) account.
Rising debt and deficits can lead to higher interest rates. Higher interest rates mean that it will cost more to borrow money to buy a house or a car. Paying tuition fees or starting your own business will become more expensive.
Higher interest rates affect credit card purchases, so expenses like buying gas or groceries or even vacations will cost more.
Programs like 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 support cash-strapped programs such as Medicare, which is expected to run out of money by 2026, and Social Security, which will likely be insolvent by 2034, unless benefits are reduced. reduced or other measures taken ashore. the programs.
âThe deficit should be big for anyone who cares about America’s future,â said Michael A. Peterson, CEO of the Peterson Foundation. become the fastest growing part of the federal budget.
Peterson said that in a few years, interest will exceed what the government spends on children or defense, and will total $ 7 trillion over the next 10 years. “This is not good for the budget, our economy or the many priorities of our country,” he said. “Not dealing with this debt problem now makes it more difficult for all Americans in the future.”
If the United States continues on its course, interest payments on the national debt will be the most important government program in three decades, says the non-partisan Committee for a Responsible Federal Budget.