Math, Politics Create Headwinds for Looming Trump Budget

By Jonathan Nicholson

The fiscal 2018 budget proposal President Donald Trump is to send to Congress on May 23 has only two hurdles, but they are big ones: math and politics.

Following through on what Trump promised during his campaign—increased defense spending, massive tax cuts and lower deficits—will take major spending cuts, much faster economic growth or some combination of the two. And, it will take the legislative will to push through policies to make those things happen.

The budget will likely face skepticism from lawmakers within Trump’s own party, wary of taking more tough votes on spending cuts after facing sharp criticism for their health care repeal vote.

‘Reduce Spending Significantly’

The forthcoming budget will follow on the heels of an abbreviated plan released March 16 by the Trump administration. That release only dealt with annual appropriations for the upcoming fiscal 2018 year, while the May 23 release is expected to deal with outyear appropriations, entitlement spending, taxes and the underlying economic and deficit assumptions for the full budget window.

A White House official told Bloomberg News the budget will aim for balance in 10 years, a stance in keeping with congressional budget resolutions adopted by Republicans in recent years. But the path to getting there will be tough.

In a Feb. 1 appearance before the Senate Budget Committee, Keith Hall, director of the nonpartisan Congressional Budget Office, was asked how the budget could be balanced without raising taxes. In a written answer to that question released April 6, Hall said, “Balancing the federal budget by the end of 2027 without raising taxes is possible, but it would require policymakers to reduce spending significantly.”

Hall said if all federal spending aside from interest on the debt were reduced by 2.1 percent in 2018 and a same-sized amount in the subsequent years of the budget—rising from $80 billion in savings in 2018 to $1.2 trillion in 2027—the budget could be balanced. “Under that illustrative scenario, total spending in 2027 would equal about 18.3 percent of GDP—lower than the 50-year average of 20.3 percent and lower than it has been since 2001,” he wrote.

$2 Trillion, 10 Years

Administration officials have said faster economic growth would help ease that gap. Treasury Secretary Steven Mnuchin told members of the Senate Banking Committee on May 17 the White House was willing to temporarily lower revenues—which would increase the deficit—to try to boost growth.

“The president does believe that we need to create economic growth and that we are willing to have lower tax revenues in the short term if that will create economic growth,” Mnuchin said. “The difference between 2 percent and 3 percent GDP is roughly $2 trillion over a 10 year period of time. It’s a lot of money and economic growth will help us deal with a lot of other complicated economic issues we have.”

Most economists are skeptical a tax overhaul or debt-financed tax cuts will goose the economy so that it grows at a 3 percent annual basis consistently. Marc Goldwein, senior vice president with the anti-deficit Committee for a Responsible Federal Budget, told reporters May 18 it would be “pretty heroic” for the economy to consistently grow at 3 percent, even with the tax and regulatory changes proposed by the White House.

He also cautioned against relying on growth to help ease the government’s debt load. “We shouldn’t be buying magic beans,” he said.

‘Keeping Seniors Alive!’

Aside from the arithmetic, the politics of an austerity budget are tough, even within Trump’s own party. Appropriators feel their part of the spending, which is only about 30 percent of overall government spending, has been cut enough since the imposition of annual appropriations caps in 2011. They are unlikely to support further deep cuts.

“Then you get things like eliminating the arts and humanities, public broadcasting, and Meals on Wheels. I want to go home after having voted against Meals on Wheels and say, ‘That’s a bad program—keeping seniors alive!’” joked Rep. Mike Simpson (R-Idaho), a House Appropriations Committee member.

“Just some of this stuff in here doesn’t make any sense, frankly,” he said May 17.

With Social Security and Medicare largely off the table, according to Office of Management and Budget Director Mick Mulvaney, the amount of savings from entitlement programs not subject to appropriations is much smaller. But even there, proposed cuts may be hard to push through.

Hard to See Change

One target for cuts may be the federal food aid program for the poor, known as the Supplemental Nutrition Assistance Program (SNAP). Rep. Frank Lucas (R-Okla.), a member of the House Agriculture Committee, which oversees SNAP, told Bloomberg BNA on May 19 that he didn’t see a need to again revisit SNAP cuts.

“I think we had a long and exhaustive debate and discussion about this process back in 2012 in what became the 2014 farm bill. While reforms are always possible in everything that involves ag policy, I have a hard time seeing dramatic change,” Lucas said.

“Let’s just say that I have seen many presidential budgets. I have seen many congressional budgets. Occasionally there’s actually been a conference report on the House and Senate together, in my time,” Lucas said. “But, ultimately, the appropriators and the authorizers do the work. So, I’m calm.”

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