Trump 2021 Budget Would Downshift on Spending

By at 13 February, 2020, 12:28 pm

by Raymond J. Keating-

One of the policy negatives working against economic growth that few have been talking about of late is federal government spending. Specifically, federal outlays jumped substantially higher in fiscal year 2019, which ended at the close of September, and are projected to make another big jump during the current 2020 budget year.

Specifically, outlays increased by a dramatic 8.3 percent in FY2019. That was the biggest jump since the Great Recession years of bailouts and failed stimulus spending.

For FY2020, the growth in outlays are still expected to rapidly increase by 7.7 percent.

Data Source: Office of Management and Budget, Budget of the U.S. Government

Indeed, it’s worth noting that since the December 2017 tax relief package was passed, federal revenues increased slightly in FY2018, and then accelerated in 2019 and are expected to show solid growth in 2020 as well.

Therefore, these revenue and outlay realities make clear that massive federal budget deficits of $984.2 billion in 2019 and an expected $1.08 trillion in 2020 are overwhelmingly attributed to big spending increases.

For good measure, it needs to be recognized that increased government spending does not serve as any kind of economic stimulus. Instead, more government spending means increased resources being siphoned away from productive private sector undertakings – whether via taxes, borrowing or both – and channeled into politically-driven ventures, where incentives for waste dominate.

So, to improve economic growth, the U.S. needs to rein in the growth of government spending. The proposed 2021 budget from the Trump administration released on February 10 would shift course from the last two big-spending budget years by calling for growth in federal outlays to slow dramatically, increasing by only 0.8 percent. After factoring in inflation, that would amount to a real reduction in outlays.

If passed, this would be a start at reining in the federal spending problems of 2019 and 2020. But more obviously would be needed.

Unfortunately, even one year of spending restraint seems to be too much for various free-spending Members of Congress. The budget battle has been engaged, and let’s hope fiscal responsibility wins out over wild-eyed spending … for a change.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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