The first 100 days in office for an incoming president are often viewed under a microscope by the American public. It's the period where the American people find out whether a president's campaign rhetoric and promises turn into reality while in office.
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Trump unveils his 2018 budget
On Thursday, March 16, President Trump took the next step in his whirlwind of tasks to tackle by releasing an outline for his 2018 budget proposal. It should be noted up front that this outline strictly tackles discretionary spending which does amount to more than $1 trillion while leaving mandatory spending programs such as Social Security, Medicare, and Medicaid, out for the time being. Despite not including these components, which account for well over half of the federal budget, we got a really good glimpse of the president's approach to budget management -- namely, boosting defense spending and cutting practically everything else.
Image source: Getty Images.
When taken as a whole, Trump's 2018 budget outline looks to corral discretionary spending by 1.2%, which should come as no surprise to anyone. Trump vowed during his campaign to reduce government waste by trimming the size of government, a common goal of the Republican Party, and he appointed Mick Mulvaney, an ardent fiscal hawk who seeks a balanced budget and isn't afraid to voice his opinion against popular programs, as his budget director.
What you need to know about Trump's budget in one chart
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So what exactly does Trump's budget entail? The following chart should give you a generally good idea of what's being cut and where all that extra money is headed.
Data source: WhiteHouse.gov via the Office of Management and Budget. Chart by author.
Just three agencies defense, homeland security, and veterans affairs are expected to see an increase in spending based on Trump's 2018 budget outline. The proposed $52.3 billion increase in defense spending makes up the bulk of the nearly $59 billion being cut from 14 other agencies.
Which agencies get more money?
With regard to the Defense Department, Trump's proposal would repeal the sequestration of $52 billion in annual defense spending that was enacted via the Budget Control Act, beginning in 2013. The proposal primarily suggests the importance of spending additional funds to upgrade the U.S. military to fight ISIS and for the purpose of military readiness. It specifically lists out spending for additional F-35 Joint Strike Fighters for the Air Force, a fighter jet manufactured by Lockheed Martin (NYSE: LMT), and strongly hints at the need for new technological defense advances for all branches of the military. However, there aren't too many specifics of where the added $52.3 billion would go.
The Department of Homeland Security would get a $2.8 billion raise over what it was divvied out in 2017, with $1.5 billion being added for the removal of illegal immigrants, and $314 million being spent to recruit, hire, and train 500 new border-patrol agents.
Image source: Official U.S. Navy Page, Flickr.
Last in the plus column is the Department of Veterans Affairs, which would see a $4.4 billion year-over-year increase. The proposal specifically lists a $4.6 billion increase in VA healthcare to "improve patient access and timeliness of medical care services for over 9 million enrolled veterans." This highlights the important role that pharmaceutical and device companies will be expected to play in the years and decades to come as veterans, and Americans as a whole, age and live longer.
These agencies would receive less under Trump's proposal
On the other side of the equation, 14 agencies would receive less money in 2018 if the budget outline were passed in its current form. In fact, 11 of the 14 agencies (energy, treasury, and NASA excluded) would see a double-digit percentage decline in federal funding from the 2017 baseline.
In terms of aggregate percentage, no agency would be dealt a steeper budget cut than the Environmental Protection Agency. Even though it was a relatively small budget component in 2017, with baseline funding of $8.2 billion, Trump's proposal knocks off nearly $2.6 billion, or 31%. As part of the president's push for deregulation, some 3,200 jobs would be eliminated, funding for the Clean Power Plan would be entirely redacted, and roughly 50 EPA programs would be terminated.
The State Department would also take a pretty sizable monetary and percentage hit, losing $10.9 billion in funding year over year, or 29% in percentage terms. With a focus on keeping U.S. spending in America, Trump's budget would strip all funding to United Nations-based climate initiatives, and it would reduce funding for U.N. peacekeeping operations.
Image source: Getty Images.
In terms of pure monetary reductions, no department gets hit harder than Health and Human Services, with a $12.6 billion spending cut from the 2017 baseline, or 16% overall. A pretty hefty 18% spending cut ($5.8 billion) at the National institutes of Health and the elimination of $4.2 billion in community-service programs explains the bulk of the cuts.
One major hurdle to consider
This so-called "skinny budget" gives the American people a good idea of where federal spending may head in the years to come. However, it completely disregards one critical component: Any major change in defense sequestration is going to require 60 votes in the Senate to pass. Even if Republicans were to vote along party lines, they would fall eight votes short if Democrats do likewise.
I believe the key takeaway here for readers is that Trump's budget outline is a starting point for discussion. Rarely, if ever, are budget proposals passed quickly and intact. Congress typically debates spending provisions within a proposed budget for weeks, if not months. Chances are pretty good that what we're looking at now from Trump won't be the exact budget that gets passed for fiscal 2018.
For investors, the macroeconomic implications of this federal spending can indeed matter. This means it's in your best interests to pay close attention to the expected wheeling and dealing that'll be associated with this budget outline in the weeks to come.
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