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The Effect of Trump’s Budget Cuts on Domestic Businesses

August 10, 2017
On November 8, 2016, Donald Trump was elected into office as the President of the United States. Upon entering the office, he made quite a few promises to the American public on what he would accomplish during his term.

These promises included the implementation of a wall to stop Mexican illegal immigration, greater national defense, and a cut on taxes especially for the wealthier class. Although highly contested, President Trump remained true to his words and through his executive orders and budget plans brought his ideas into fruition.

Image: A comparison of budget cuts across recent administrations. Source: The Economist.

Image: A comparison of budget cuts across recent administrations.

Source: The Economist.

On March 16, President Trump proposed the “America First” budget. This budget cuts internal budgets across all federal departments in order to build up defense and protection. These cuts include a 16% cut in Health and Human Services, 14% cut for the Department of Education, and a 31% cut for the Environmental Protection Agency. [1] In replacement, the Department of Homeland Security sees a surge of 6.8% and the Department of Defense sees an increase of 10.1%. This selection of spending can have extremely significant impacts on the nation’s economic well-being. [1]

As an intern in the Office of the Chief Information Officer at the U.S. Department of the Treasury this summer, the 9.2% budget cut in the Treasury has been felt hard by all its employees. Despite our cut not being nearly as high as it was for the aforementioned institutions, the effects it has on an organization have been clearly felt. A hiring freeze has been put in place and our Assistant Chief Information Officer, Deb Vess, claimed that creating a budget for the Treasury’s spending this year has been harder than it ever has been before. She claimed this is the most significant cut the Treasury has faced in her lifetime and recovering from a setback this big can take time as several divisions have become under resourced. As such a large organization with a relatively minor cut, it is beyond any of our imaginations to fathom the kind of hard work and perseverance it will take in order to set the budget for heavily hit organizations like the Environmental Protection Agency. Similarly, agencies like Department of Defense that have received a strong boost in funding will also need to be innovative to find ways to use their resources to do good for the overall nation.

Some of the major pitfalls of this budget include a forecasted drop in employment. Experts predict over 177,000 jobs will be lost in 2017. Furthermore, this budget could lead to up to a 0.1% decrease in GDP and ultimately a loss of 1.4 million jobs in the federal government by 2020. [5] This pessimistic viewpoint has made citizens increasingly wary of their own financial conditions and future stability. However, I believe a possible upside to this forecast is that it may encourage a greater number of people to look for jobs in the private sector, convincing major domestic corporations to stay within America instead of outsourcing or branching out.

Image: Predicted effect of Trump's budget on GDP, unemployment, budget deficit, and inflation. Source: Moody's Analytics.

Image: Predicted effect of Trump's budget on GDP, unemployment, budget deficit, and inflation.

Source: Moody's Analytics.

Specifically, President Trump’s proposed plan can have major impacts on the future growth of domestic businesses. His plan proposes to eliminate the Economic Development Administration, which helps entrepreneurs start and build businesses. Furthermore, his plan eliminates the Minority Business Development Agency, which helped almost 27,000 entrepreneurs create and retain jobs in 2015. [2] However, as a personal defendant of domestic businesses, President Trump justifies these entrepreneurial cuts by explaining that these services are better provided by the private sector. Perhaps the proposed plan may strengthen the independence of the entrepreneurial industry as it is forced to maintain prominence through outside resources.

Beyond direct impacts on small domestic businesses, the proposed budget also affects the future of domestic business by altering the national education system directly. Trump’s new budget eliminates subsidized loans for new undergraduate borrowers starting July 2018, which means students will start accumulating interest on their college debts while still being in school. This simple change will cause an increase in tuition by 39 billion dollars over 10 years and could eventually lead to a drop in college enrollment rate – a major warning sign for domestic businesses hoping to hire college graduates. [3] Furthermore, for those who have already joined the workforce, cuts in the Workforce Innovation and Opportunity Act could lead to 571,000 workers losing access to critical job and career development services. In total, the “America First” budget not only has the potential to harm businesses in the present but can also hinder future growth due to an insufficiently equipped workforce. [6]

Thus, based on the overall impact of President Trump’s new budget proposal on various aspects of the American community, it can be seen that this budget has the ability to affect domestic businesses extremely negatively. Larger businesses will most likely profit from this budget as President Trump continues to target the larger players in the corporate sector and provides tax breaks to wealthier families as promised in his election speeches. In contrast, students just graduating college and workers looking for job enhancement may struggle significantly more due to spending cuts in these federal aid departments. What President Trump has essentially created is a free market-minded community with each citizen for themselves, expecting very little aid from the federal government.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

 

References

  [1] Krieg, Gregory, and Will Mullery. “Trump’s budget by the numbers: What gets cut and why.” CNN. May 23, 2017. http://www.cnn.com/2017/05/23/politics/trump-budget-cuts-programs/index.html.

  [2] “Donald Trump.” The Economist. March 17, 2017. http://www.economist.com/blogs/graphicdetail/2017/03/daily-chart-11.

  [3] Quinn, Ben. “US foreign aid expected to be biggest casualty of Trump’s first budget.” The Guardian. February 27, 2017. https://www.theguardian.com/global-development/2017/feb/27/trump-first-budget-us-foreign-aid

  [4] Rebecca Vallas, Harry Stein, Eliza Schultz, Neil Campbell, Kate Bahn, Regina Willensky, Kevin DeGood, Antoinette Flores, Ethan Gurwitz, Alexandra Thornton, Angela Hanks, Luke Bassett, and Myriam Alexander-Kearns. “How the Trump Budget Undermines Economic Security for Working Families.” Center for American Progress. May 26, 2017. https://www.americanprogress.org/issues/economy/news/2017/05/23/432842/trump-budget-undermines-economic-security-working-families/.

  [5] “Trump budget proposal is a potential jobs-killer, imposing a major fiscal drag that would radically slow job growth in coming years.” Economic Policy Institute. http://www.epi.org/blog/trump-budget-proposal-is-a-potential-jobs-killer-imposing-a-major-fiscal-drag-that-would-radically-slow-job-growth-in-coming-years/.

  [6] Walsh, Luke Bassett and Jason. “The Trump Budget Cuts Hit Coal Communities and Workers Where It Hurts.” Center for American Progress. https://www.americanprogress.org/issues/green/reports/2017/04/24/430842/trump-budget-cuts-hit-coal-communities-workers-hurts/

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