The US budget deficit this year is set to rise to $702 billion which is a staggering $99 billion increase from the government forecast just two months ago. This is a bitter blow for the Trump government with last year’s deficit coming in at just $585 billion and the deficit for 2018 set to widen as well. While a $99 billion increase in the current budget deficit is staggering, experts believe there will be a $149 billion increase on the forecast for 2018. This figure is set to come in at around $589 billion. So, what is going wrong and how can Donald Trump fix it?
Lower tax revenues to blame for worsening budget deficit
The budget deficit over the next two years will be hit hard by worsening tax revenues which it was hoped would help to improve the US budget in the short term. The fact that tax revenues are struggling to meet targets would suggest that the economy is not growing fast enough and spending plans are yet to be reined in. The Office of Management and Budget has also been extremely dismissive of Donald Trump’s claims that May’s budget would see the US Federal budget balanced within 10 years.
Many experts believe that Donald Trump has been far too optimistic with regards to short to medium term economic growth. He is also struggling to push through an array of budget cuts which are necessary to eventually balance the budget.
Spending plans on hold?
When Donald Trump was running for president he often spoke of a massive increase in infrastructure spending right across the US. The idea was that infrastructure spending would improve the employment market which would improve the economy which would improve the tax take. All seems fairly straightforward?
Well, as we touched on above, it does look as though Donald Trump has been far too optimistic with regards to his target economic growth. Growth this year is set to hit just over 2% which is well short of Donald Trump’s aspirations towards 3% growth in the economy. Of late there has been a dampening of hopes of economic growth towards the 3% figure but nonetheless Donald Trump did promise voters that he would cut red tape, increase infrastructure spending and ensure US jobs for US workers. Indeed there was even talk of growth approaching 4% when the presidential election campaign was in full flow. What has he actually done so far?
Short-term pain, long-term gain
Even though the US economy is growing and there are plans for further investment to speed up this growth, it may be a case of short-term pain for long-term gain. It is unfortunate that Donald Trump played his hand to early by promising significant economic growth in the short to medium term when perhaps he would have been better off consolidating his position. As you might expect, team Trump have come out all guns blazing blaming former President Obama for the predicament he’s in today.
Investors and the business community would rather see Donald Trump talking positive about the economy and the prospects for the future as opposed to trying to rubbish his predecessor. Image and reputation or obviously very important but now is the time to get down to business and deliver on as many of his economic promises as possible. That is if he can?