Like any other country, the United States of America runs on a fiscal budget that regulates tax impositions in various sectors of its government. The budget determines the tax imposed on multiple industrial sectors and also lays down the roadmap of how expenditure and investments in different fields would shape up during its tenure. The US federal budget is an essential factor, contributing not only to the growth of its national GDP but also impacting the global economy. In 2020, the United States’ federal budget is expected to make an even more significant impact on the nation due to the worldwide health crisis on novel coronavirus (COVID-19)
The United States’ Budget for 2020
Every year, the annual federal budget runs from October to September of the ongoing fiscal year. Under Donald Trump’s Presidency, the 2020 United States budget spans from October 1st, 2019 to September 30th, 2020, for this fiscal year.
To begin with, the federal government has to search for some initial funds from a series of temporarily continuing resolutions. The budget for the fiscal year 2020 gets its final package of funds when the two spending bills are consolidated and passed. In December 2019, the U.S government passed the Consolidated Appropriations Act, 2020 (H.R. 1158), followed by the Further Consolidated Appropriations Act, 2020 (H.R. 1865).
Moreover, a series of additional appropriations bills were submitted and passed in early-March as a supplementary response to the ongoing COVID-19 pandemic in the country.
What is the US Budget for 2020?
According to the announcement made by President Donald Trump, a federal budget of $4.829 trillion has been proposed for the country in the fiscal year 2020. Proposals of the president’s budget span the fiscal year 2020-2021 and have been passed on February 5th, 2020. The budget was implemented in March 2020.
Based on an estimate made by the U.S government, the budget may garner revenues worth $3.863 trillion in the fiscal year 2020. The President is concerned about how this budget could also create a deficit of $966 billion during the period of October 1st, 2020, and September 30th, 2021. The President and the United States Congressional Budget Office (CBO) is responsible for making predictions on how the global COVID-19 pandemic would impact the FY 2020-2021 budget. The President also expects the count
try to face a major increase in its budgetary deficit in the fiscal year 2021, which could even size up to $2.1 trillion. For the fiscal year 2020, the budget deficit predictions stand at $3.7 trillion approximately.
Key Takeaways of the US Budget for 2020-21
- The total budget for FY 2020-2021 is expected to be worth $4.829 trillion.
- The 2020 budget stands as the most massive budget to date and eclipses all the previous budgets.
- Mandatory expenditure of the 2020 budget includes Healthcare, Social Security, and the Supplemental Nutrition Assistance Program.
- These three expenditures will account for nearly 60% of the budget in 2020.
- For FY 2021, the budget expenditures are likely to surpass $966 billion in federal revenues.
- The majority of these revenues will be coming from earnings and taxes with quantitative easing.
- In terms of total revenue, the federal government expects to bring in revenues worth $3.863 trillion in the FY 2020-2021, primarily from payroll taxes.
Taxpayers will pay most of the revenue received under the budget in the form of income taxes before March 2021.
The 2020 United States Budget Menu
For the remainder of 2020 and till the mid of 2021, the federal government aims to spend the president’s budget across three main categories. The main types of government spending in 2020 include:
- Mandatory Spending: The U.S government mandatory spending for 2020 is set at $2.966 trillion.
- Discretionary Spending: The government discretionary spending for 2020 is forecasted at $1.485 trillion.
- National Debt Interest: On the national debt for 2020, the federal government will spend an estimated $378 billion interest.
Each of the above categories is further classified into multiple fiscal budget spending sub-categories. Based on the economic information and the predictions made by the CBO, $1.932 trillion will be made available via income taxes, which could amount to 50% of the total spending receipts. According to the CBO committee, another $1.373 trillion will be added to the fiscal budget for spending on Medicare and Social Security. The additional payroll taxes on these mandatory expenses will size up to 36% of the budget. The United States Corporate Tax segment will make 7% of the spending at $284 billion.
Meanwhile, only 4% of the federal budget in 2020 will be accounted for by excise taxes and tariffs, amounting to $141 billion. Based on the United States Federal Reserve’s holdings and earnings, another 2% of the budget will be spent, estimating it to be worth $71 billion. This 2% spending is the payments made in the form of interests on the U.S. Treasury Debt acquired by the Federal Reserve via quantitative easing.
The remaining 1% of the government spending will be supplied by different revenue streams, which primarily include estate taxes. The United States Tax Freedom Day in 2021 will help the country to visualize the burden of taxes on US workers and search for solutions. In April, this day marks the representative of taxes imposed on all wages earned in the country. The impact of Tax Freedom Day will add new commitments to the US federal budget for the fiscal year 2020.
Social Security and Medicare Spending
The government is expected to provide $4.829 trillion for mandatory spending. Almost 60% of mandatory spending will be distributed across the subcategories of mandated benefits, namely Medicaid, Medicare, and Social Security.
In terms of discretionary spending, the President announced that the government would pay $1.485 trillion for everything besides the above categories. Appropriations made by the U.S. Congress indicated that this amount in this fiscal year served as the starting point by the president’s budget. The estimated interest on accrued the debt will be worth over $378 billion. This interest amount is derived from the $23 trillion in approximate liabilities, making it the fastest-growing federal expense for this year’s fiscal budget. The Congress projections state that this expense is slated to get doubled by the fiscal year 2028. Hence, authorities are conducting an ongoing search for lowering this doubling debt.
The US Treasury is expected to pay up interest for avoiding the current fiscal year’s debt to default. If the debt default occurs in 2020, for the highest-ever US federal budget, then the adverse consequences of it would be unlike anything that has happened before. It is a grave concern for Congress, compelling it to search for alternatives.
The Mandatory Spending for 2020 would be an estimated $2.966 trillion. Under this spending category, the significant chunk will be supplied to Medicare, Social Security, unemployment compensations, and similar entitlement programs, including the Medicaid welfare programs.
Social Security will be the most significant spending in the fiscal budget. The estimates indicate that it will cause the navigation of $1.151 trillion from the budget. Since March, Medicare will take an estimated $722 billion from the fiscal budget pie, while $448 billion will be released via Medicaid.
Currently, Social Security costs are fully-covered by investment interests and payroll taxes. The President also announced that the Social Security Trust Fund is running high thanks to surplus investments made in the US economy over the past decade. According to the Trust Fund’s Board, this surplus is expected to get depleted gradually between 2020 and 2034. Earnings interests and payroll taxes will generate a Social Security revenue that covers around 79% of the retirement benefits.
On the other hand, Medicare in the country is massively underfunded. Taxes are being withheld for Medicare programs as the public does not get all the benefits. The US Congress is paying a part of it by the tax dollar. Medicaid is now 100% funded by the General Fund, which is a financial account of the Congress that supports long-term as well as the daily activities of the government.
Congress-backed Discretionary Spending for 2020 is $1.485 trillion, and over 50% of it is spent on military expenditure. It comprises Homeland Security spending and expenses made towards defense-related departments such as the Department of Veterans Affairs. Housing and urban development projects, education programs, and health and human services programs are also major stakeholders of the Discretionary Spending.
Backed by the President and the CBO, the Overseas Contingency Operations fund will support the warfare expenditure in the country for 2020, with nearly $69 billion. It will finance the continuing military actions while a significant piece of the Discretionary Budget will be allotted to disaster relief, particularly for wildfire and hurricane relief. The administration authorities are in a search for finding ways to mitigate the issues created by the relief funds.
From March onwards, the Military Spending will provide $636 billion to finance the base budget of the Department of Defense. This military spending also included $228 billion finance dedicated to Homeland Security, Veterans Affairs, and the State Department. To sum up, the total Military Spending will size up to $705 billion.
The 2020 United States Budget: Supplementary Initiatives
- $1.4 billion funding for the construction of President Trump’s the Mexico–United States barrier border from June 2020
- Significant tax repeals on health insurance plans and medical device fees from March
- Seven-year extension to the Export-Import Bank of the United States $12.5 million to be provided for every research project under the National Institutes of Health and Centers for Disease Control and Prevention
- Science research funding increased from 2% to 7% for leading organizations such as NASA, National Institutes of Health, National Science Foundation, and the Department of Energy Office of Science, among others.
- $425 million provided for the 2020 US Presidential Election security grants
- Funding the enactment of The SECURE Act and the CREATES Act
The 2020 United States Budget Deficit
This fiscal year’s budget deficit will be around $966 billion, which is basically the difference between the spending total of $4.829 trillion and the revenue estimations of $3.863 trillion, This shortfall will slow the economic growth of the country. It will agitate interest rates and make investors search for ways to purchase Treasury notes citing fears of non-repayment of the debt by the U.S. government.
What to Expect from the US Budget for 2020-2021?
All things considered, the government is focusing on minimizing the impending high deficit as much as possible. The COVID-19 health crisis has disrupted the history of the country’s federal budgets. To manage its social wellbeing, the country has supplemental appropriations made as a response to the COVID-19 pandemic. The Coronavirus Preparedness and Response Supplemental Appropriations Act and the Coronavirus Aid, Relief, and Economic Security Act, followed by the Paycheck Protection Program, will shape up the economic health of the country in the fiscal year 2020 and the post COVID-19 era.