Budget Watcher warns of ‘looming severe storm’

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Projected long-term budget trends could cause problems for military and defense contractors, a leading analyst warns.

In late May, the White House’s Office of Management and Budget released new federal spending projections.

OMB’s 2022-2031 Funding Projections Are First-Ever Integrated Picture of the Combined Impact “of the Biden Administration’s US Jobs Plan, the US Family Plan, and other program increases nationals, wrote Jim McAleese, owner and director of McAleese & Associates, in a newsletter. .

The Biden administration is targeting average annual real growth of around 2% of GDP after accounting for 2.3% of projected annual inflation, he noted.

He proposed a federal budget of $ 5.7 trillion for 2022, a peak of 16% from the amount adopted for 2021, according to McAleese. This includes $ 753 billion for discretionary defense spending and $ 769 billion for discretionary non-defense programs. Other costs include non-discretionary programs such as Social Security and Medicare.

Over the next 10 years, funding for national programs is expected to increase by 42%, or an average of 4.2% per year, while defense spending is expected to increase by 17%, or an average of 1.7% per year. an, McAleese said. Meanwhile, the federal government will run an annual deficit of $ 1.4 trillion on average, or about 5.2% of GDP.

Federal spending is expected to rise from $ 4.9 trillion before the pandemic to $ 7.9 trillion in 2031, he added.

“OMB recognizes that annual interest on the current $ 30.2 trillion in current US debt will increase by 191%,” from $ 303 billion in 2021 to $ 883 billion in 2031, McAleese said. Interest on the debt in 2031 would exceed defense spending planned for that year by about $ 20 billion.

At the end of this period, total US debt will grow an additional 50% to $ 44.9 trillion, he said.

“Any structural obstacle to [the government’s] the ability to increase total US debt by an additional 50%… is likely to result in a large ‘zero sum’ reduction in lower priority discretionary spending, ”McAleese said. “This presents a growing risk of ‘crowding out’ DoD funding, which could begin as early as 2024-2025,” he added, warning of a “violent storm approaching” on the fiscal front.

Debt concerns could lead to another round of budget ceilings as they did during the Great Recession, he noted.

“A significant change in House and / or Senate control could also trigger a new Budget Control II law, reducing discretionary spending,” McAleese said.

The subjects: Budget, Ministry of Defense