The State of the Union Deficit

If you listened to President Trump’s State of the Union speech Tuesday night, you heard about immigration, national security, the war on terror, international trade, rebuilding infrastructure, and other items on the President’s policy agenda.
 
What you didn’t hear was any mention of the nation’s growing annual budget deficits and debt. New annual deficit estimates will be released soon by the Office of Management and Budget and the Congressional Budget Office, but the nonpartisan Committee for a Responsible Federal Budget (CRFB) now estimates that $1 trillion annual deficits are possible by 2019.
 
CRFB also estimates that legislation enacted into law in 2017 will add $1.9 trillion to the national debt through 2025. Most of this increase is due to the $1.5 trillion cost of the Tax Cuts and Jobs Act. Economic growth generated by that Act will pay for part of its cost, but it won’t pay for all of it. Estimates vary depending on the economic model used, but the nonpartisan congressional Joint Committee on Taxation estimates that economic growth will reduce the budgetary cost by just $385 billion over ten years.
 
The federal government’s budget picture is clearly getting worse. The initiatives envisioned in the President’s speech, if they are not paid for, will add to the problem. Let’s look at what the President said:
 
Infrastructure: The President called for “Congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment.” Part of the $1.5 trillion would come from state and local governments and the private sector; the rest would come from the federal budget. The President’s infrastructure plan has not yet been released, but the President said earlier in January that the plan would cost the federal government $200 billion.
 
National defense: The President asked Congress “to end the dangerous defense sequester and fully fund our great military.” We’ll see specifics when his budget is released (February 12 is the expected release date), but early reports suggest a $716 billion fiscal year 2019 defense budget, which is 7 percent more than the Administration’s 2018 request and 13 percent more than the 2017 level.
 
Border security: The President laid out a four-pillar immigration plan: “[t]he second pillar fully secures the border. That means building a wall on the Southern border, and it means hiring more heroes… to keep our communities safe.” He is expected to ask for $18 to $20 billion for the border wall along with additional funds to hire more border patrol and immigration enforcement agents.
 
Paid family leave: The President wants to “support working families by supporting paid family leave.” His fiscal year 2018 budget plan included a proposal that cost $25 billion a year.
 
Disaster relief:  In his speech, the President said “[t]o everyone still recovering in Texas, Florida, Louisiana, Puerto Rico, the Virgin Islands, California, and everywhere else -- we are with you, we love you, and we will pull through together.” After one of the most severe hurricane seasons on record and serious wildfires in the West, there is an unquestionable and immediate need for disaster relief funding. Two disaster relief appropriations bills totaling $52 billion were enacted in 2017, and the House passed a third bill in December to provide another $81 billion.
 
Additional spending in these areas may have merit – that will be debated in Congress over the coming months. But, if additional spending is approved without being paid for with increased tax revenues or spending cuts in other areas, the budget’s red ink will get worse, hurt long-term economic growth, and leave future generations with the bill. This is the deficit in the State of the Union.