Yesterday, President Trump released his plan for the 2018 budget, proposing a budget of $4.1 trillion for the government.
With dramatic cuts in taxes—supposedly offset by economic growth and major cuts to government funding—the plan encompasses proposals that have serious implications for the wealthiest and poorest Americans.
What about you, the small business owner? What can you expect to see from Trump’s budget proposal in the future?
Here’s what you need to know.
What are the Takeaways from the 2018 Budget Proposal?
What gets cut and what gets boosted under Trump’s 2018 budget proposal?
Well, Trump’s plan closely resembles budget proposals advanced by House Speaker Paul Ryan—advocating for trillions in budget cuts to agencies that have programs that help the poor.
Here’s how the budget cuts break down exactly:
- In the 2018 budget, the Department of Labor’s funding would down from $12.1 billion to $9.7 billion—resulting in about a 20% budget decrease.
- The Department of the Interior’s budget will decrease from $13.2 billion to $11.7 billion—about an 11% budget decrease.
- The Department of State and International Aid’s budget will decrease from $39.7 billion to $28.2 billion—about a 30% decrease in budget.
- The Department of Justice’s budget will be cut from $28.8 billion to 27.2 billion—about a 4% decrease.
- The Department of Housing and Urban Development’s budget will be cut from $46.9 billion to $40.7 billion—a 13.2% budget decrease.
- The Department of Education’s budget will be cut from $68.2 billion to $59 billion—about a 14% decrease.
- The Environmental Protection Agency’s budget will go from $8.2 billion to $5.7 billion—a 31.4% decrease in budget.
You get the picture—the 2018 budget is all about cutting what’s called Non-Defense Discretionary Programs (NDDs). And over the next decade, the most substantial spending cut will come from major divestments in entitlement programs (like healthcare, food stamps, and disability programs)—cutting $2.5 trillion in entitlement spending.
Some government programs are proposed to be cut entirely in the 2018 budget: The Chemical Safety Board, the National Endowment for the Arts, the Corporation for National & Community Service, the United States African Development Foundation, and many more.
However, not all government programs will suffer major budget cuts or complete elimination if any of Trump’s budget proposals are adopted. Some government programs—including the Small Business Administration (more on how that will affect your business to follow)—will remain at their 2017 funding levels, or even see an increase.
The following 3 government programs will see a bump in spending:
- The Department of Homeland Security will see a 6.8% increase in spending—up to $44.1 billion from 2017’s $41.3 billion budget.
- The Department of Defense will have a 10.1% budget increase—up to $574.5 billion from 2017’s $521.8 billion budget.
- The Department of Veteran Affairs’ budget will increase by 5.8%—up to $78.8 billion from 2017’s $74.5 billion budget.
How Does the Budget Balance Out?
Now, “budgeting” is all about balancing your spending with the amount of revenue coming in—not unlike what you, as an entrepreneur, have to do with your business’s spending levels.
So why all the cuts to government programs? What do the spending cuts balance out?
Well, the recently released 2018 budget proposal needs to be viewed in conjunction with Trump’s tax proposals.
Trump’s tax reform is aggressive—likely cutting taxes on the wealthiest earners (more than $1 million in annual earnings) by trillions of dollars. In Trump’s tax plan, large corporations stand to see a major cut in corporate taxes as well.
This, of course, is the part that needs to be balanced in the budget. The government will lose major amounts in revenue by cutting taxes so aggressively. While it’s widely believed that this tax policy would set our deficit to $1.3 trillion in 2027, President Trump and his economic advisors expect deficit-neutrality through yesterday’s proposed budget.
Their argument is that, along with the major cuts to almost every government program’s budget (the lowest NDD spending levels in six decades), extremely optimistic economic growth from reduced tax burden will make the loss in revenue even out to deficit-neutrality.
Critics of Trump’s budget proposal suggest that the math doesn’t work out as cleanly as Trump and his team would have hoped.
How Does the Budget Proposal Affect Your Small Business?
How could the proposed budget and the many cuts to government programs inside of it affect your small business?
Well, on the tax reform side of the budget, small business owners who have structured their businesses as “pass-through” entities—namely limited liability companies and subchapter S corporations—stand to benefit from Trump’s proposal to cut the corporate tax rate from 35% to 15%.
However, the loss in government revenue from tax cuts like these need to be balanced out by cuts in government spending and funding—all highlighted above. And a few of these government cuts could affect your business.
Namely, if you contract with any of these government agencies and programs, there’ll be fewer opportunities to work with them in the future.
With funding cuts across the board, government agencies will have fewer contracting dollars to give towards small businesses.
On the flip side of that, if your business happens to contract or even be involved in the national security or defence industry, you could see more opportunity to do business with the government in the future.
What Will Happen to the SBA?
Perhaps the budget’s most influential effect on your small business comes spending plans for the Small Business Administration.
The Small Business Administration is a government agency that not only helps business owners find small business loans (called “SBA loans”), but also provides resources for entrepreneurs looking to start, manage, and grow their businesses all over the country.
The SBA is particularly focused on helping minority entrepreneurs and business owners in disadvantaged communities secure the resources and funding they need to grow.
Now, don’t worry—the SBA and its functions aren’t being cut entirely. In fact, the government program’s funding will stay at the nearly the same levels it was funded at in 2017 (the agency gets defunded by about 5%).
The guaranteed SBA loan programs under the 7(a) loan program and 504 loan program will not be cut. However, the microloan program doesn’t fare so well in the 2018 budget proposal.
Microloans from the SBA are small-dollar financing products that specifically help small, low-income businesses in typically disadvantaged communities access financing. They come with low loan default rates and technical business assistance that helps the company grow.
In the 2018 budget, funds for microlending will be cut by 20%—only with $28 million (instead of $35 million) to make in microloans.
But in total, the SBA’s funding will be cut by $42 million. More of the defunding to the government agency will come from various counseling and entrepreneurial development programs that the SBA supports.
This is bad news if you’re a business owner hoping to qualify for microloans from the SBA or use their entrepreneurial resources. With fewer funds pumped into the SBA, there will be less to give in financing and resources to entrepreneurs across the country.
What Happens Next?
Will the government follow through with all these cuts? Not likely.
The president’s budget proposal is never law—it’s not a government policy that’s actually implemented.
However, the general suggestions in the budget do tend to guide the months of discussions that determine the House and Senate’s decision on spending levels for government agencies in 2018. President Trump’s budget proposal does give the United States a clear message of what his and his administration’s priorities look like.
In the end, we don’t have a clear-cut answer on how the budget will unfold in the coming months (and how your small business could fare in 2018). Keep on the lookout for more ways Trump’s spending cuts could affect your business!
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from Fundera Ledger https://www.fundera.com/blog/trump-budget-and-your-small-business