Update 179 — Trump’s FY18 Plan:
The Skinny on a Skinny Budget
The scale of the media coverage of the Trump administration’s FY18 budget proposal released today belies the future on the Hill for the plan, which is more message than legislative matter.
The scale of domestic spending cuts in the proposal is staggering and unprecedented — $3.6 trillion over the next decade. Never has an administration requested such drastic reductions for federal agency budgets and critical anti-poverty programs, with the deepest cuts to nutrition and health programs that kids rely on disproportionately, burdening them and the nation with additional trillions in debt.
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The administration counts on a sustained three percent growth rate projection, practically universally deemed unrealistic by economists across the political spectrum. How the administration justifies its belief the economy will grow at this rate, it does not explain. Both the Fed and the CBO expect growth to remain around the 1.9 percent mark over the next decade. This growth rate is a reality of an increasingly aged population. David Stockman points out the Trump estimate assumes the economy will go 206 months without a recession, a feat that has never occurred.
Statement of Values (Compassion 2.0)
The budget presented by the White House has no chance of being adopted. While the Executive is required to present a budget to Congress, nothing requires the Congress take the president’s proposal into account as it approves its own budget. Any major overlap between the Congress and the president would be accidental. The White House budget release is essentially a value statement of what the president stands for.
OMB Director Mick Mulvaney put it well last week: “we’re no longer going to measure compassion by the number of programs or the number of people on those programs,” adding that it is as if any spending level in the current system is sacrosanct. Compassion will be define as slicing funding, narrowing eligibility, and cutting benefits by as much and for as many as possible.
The Order of Magnitude
The budget cuts programs assisting the most vulnerable on a level never before seen.
- Medicaid — $1.4 trillion would be cut from Medicaid – $800 billion from the elimination of the Medicaid expansion by 2020, as the budget assumes passage of the AHCA, and $610 billion over ten years through Medicaid restructuring. The program’s funding to states would turn into either a per capita cap or a block grant, ending the security families get from the benefits. Close to 14 million individuals would lose their Medicaid access
- Food Stamps (SNAP) –Supplemental Nutrition Assistance Program would see a $192 billion reduction, wiping out a quarter of the program’s budget. The burden of paying for the program would fall increasingly to the states. The recent allocation of 23 percent more for the Children’s Health Insurance Program would be eliminated as well
- Disability Pay — the budget also cuts $72 billion in disability benefits.
- The plan reduces $272 billion in funding for the remaining discretionary social programs.
The administration also takes an axe to the Environmental Protection Agency, the State Department, the Department of Labor, and the Justice Department, cutting over one fifth of each agency’s budget with little justification. Trump proposes a $5.8 million cut to the National Institutes of Health and a $1 billion reduction in funding for the Food and Drug Administration and the Centers for Disease Control.
The Trump team counts on a fanciful 3 percent growth estimate, projecting $344 billion in new individual income tax revenue in 2027 despite intended tax cuts. Trump projects $2.7 trillion in new tax revenues over the full decade. The administration invents GDP percentage figures when estimating revenue receipts, estimating the government would collect 18.43 percent of GDP in the year 2027. This is curious: the CBO projects receipts under current law to be 18.37 percent of GDP that year. So even with Trump’s proposed tax cut, his budget still projects normal revenues.
The administration projects that it will balance the budget, turning a $440 billion 2018 into to a $16 billion surplus in ten years. CBO projects a steep deficit increase under this plan from a $487 billion deficit in FY2018 to a $1 trillion deficit in 2023. Any Trump claim of decreased deficits can only be considered alchemy, for with hefty tax cut ambitions, there is no possibility of fiscal order under the Trump agenda. The budget’s estimate regarding the national debt is similarly divorced from reality.
Tax Plans Left Vague
As the administration ignores the reality of retiring baby boomers, it insists discretionary spending cuts will permit a gargantuan tax cut to the wealthy. The president proposes a 15 percent corporate tax rate and the reduction of taxes on pass-through entities to 15 percent. The pass-through policy would incentivize large-scale tax avoidance among the wealthiest, as the majority of pass-through filers are in the top one percent. When tried in Kansas, this policy cost the state $700 million in revenue. Attempted on a national scale, this provision would cost the government $1.5 trillion.
Yet the president’s budget is not accompanied by any further detail expanding on the Trump tax policy one-pager. Typically, presidents include “pay-for” descriptions with their budgetary proposals. This president, however, opted not to pair his budget rollout with a Treasury Department-issued detailing of tax provisions.
We are able to examine effects the Bush tax had on both the fiscal health of the country and on economic output. President George W. Bush lowered marginal tax rates in 2001 and 2003. The CBO estimated that these reductions added $1.5 trillion to the debt from 2002 to 2011.
Additional Key Provisions
• Infrastructure — The White House budget allocates $200 billion over a decade to kickstart a public-private partnership on a $1 trillion infrastructure plan.
• Benefit Qualifications — A significant part of cuts to safety net programs in the Trump budget is new work requirements for receiving benefits. These includes requiring SNAP recipients to work more than 20 hours per week and cutting unemployment waivers. The plan also takes the earned income tax credit and the child tax credit away from undocumented immigrants.
• Border Wall — apportions $2.6 billion for border security including to commence the building of a wall along the Mexican border.
• Ivanka’s Paid Leave Plan — includes $19 billion over a decade for a family leave program pushed for by Ivanka Trump
• Grants Become Loans — includes a proposal changing foreign aid grants to loans recipient nations are expected to pay back
• Planned Parenthood — the proposed budget would end all federal spending for Planned Parenthood facilities
To sum up, the Trimp budget proposal has its audacity, to put it mildly. By
• supporting substantial deficits and dramatic debt increases of more than $5 trillion over the next decade undermines his “deficit hawk” persona by dealing a self-inflicted wound to the economy
• mandating drastic cuts to safety net programs by removing benefits from some of his most ardent supporters
• projecting impossible economic growth rates seeks to attract support for a contractionary fiscal plan that shifts resources from middle class to wealthy taxpayers on a scale that would have made the Grand Old Party blush
Donald Trump stands alone.