This summer’s budget deal, negotiated by Nancy Pelosi and Donald Trump made few headlines. And that’s exactly how these power brokers wanted it.
The new law suspends the debt ceiling through July 2021, removing the threat of a default during the 2020 elections, and raises domestic and military spending by more than $320 billion compared to existing law over the next two fiscal years.
Anxious to avoid a budget debate which Trump obviously thought he couldn’t win, the President quickly signed a new agreement to keep federal spending growing quickly into the future.
Democrats crowed:
Importantly, Democrats have achieved an agreement that permanently ends the threat of the sequester ... With this agreement, we strive to avoid another government shutdown, which is so harmful to meeting the needs of the American people and honoring the work of our public employees.
Trump, in his usual unwarranted hyperbole, called the deal “phenomenal.”
In nominal terms, spending has gone up relentlessly since Republicans gained control of both the White House in Congress in 2016. The Democratic takeover of the House has, not surprisingly, done nothing to stop the spending juggernaut.1
The budget deal ensures defense spending will go up for the sixth year in a row.2 Spending will hit a new all-time high in 2019, and will surpass a trillion dollars in 2020.
Growth is less impressive when adjusted ot the CPI. In 2018 dollars, defense spending will be just about back to the previous all-time high reached in 2011, hitting 989 billion in 2020. Welfare programs such as Medicare and Social Security all continue to reach new all-time highs nearly every year, with the exception of non-Medicaid poverty programs, such as TANF. Those programs have seen cuts in recent years.
From 2017 to 2020, the OMB estimates (in 2018 dollars) growth rates in each area as:
- Defense: 16 percent
- Soc Sec: 10.4 percent
- Medicare: 8.1 percent
- Healthcare such as Medicaid: 8.9 percent
- Other Poverty-Related Programs: -3.7 percent
Not surprisingly, the Trump administration has shown little inclination toward cutting or even moderating federal spending. Republicans had total control of Congress and White House during 2017 through early 2019, but total federal spending increased at sizable rates.
In fact, the sort of spending we saw in the 2019 fiscal year (which ends this month) and which is expected in 2020, is the type of spending we haven’t seen since the wake of the 2008 financial crisis when the federal government greatly expanded spending in the name of “stimulus.”
But, as I noted here, the Trump administration’s budgets are huge — with growing deficits — during a period of economic expansion. That is, even orthodox Keynesians might counsel slowing spending growth under current conditions, because stimulus is expected when recession hits. But the federal government is now going full bore into recession-type spending, even though there’s no recession (yet.)
So, expect spending growth and deficits to become even more astronomical when the economy shows greater signs of slowing.
- 1See table 3.2 covering federal functions and subfunctions from the Office of Management and Budget. Functions included in this article include 050, 550, 570, 600, 650, 700, and 750. https://www.whitehouse.gov/omb/historical-tables/.
- 2Defense spending here includes all “national defense” spending, plus veterans benefits, plus “Administration of Justice” funds, such as those going to the FBI which now describes itself as a national security organization. See Table 3.2 in OMB estimates.
