With a Republican in the White House and Republican majorities in the House and Senate, this should be the moment when Republicans finally move forward with a plan to reset fiscal policy according to their party’s vision. Ideally, this would mean passing a carefully constructed plan with achievable and defensible spending cuts, pro-growth tax changes, and long-term deficit reduction. Passing such a plan into law would set the party up to claim credit, perhaps for many years, for doing what was necessary to increase economic growth, drive up incomes for middle-class Americans, and put the nation’s fiscal house in order.
Unfortunately, Republicans are in the process of making a complete mess of the opportunity before them.
The problem starts with President Trump. During his presidential campaign, he steered clear of actual policy development. That may have helped him win the election, but a campaign devoid of substance makes it very hard to hit the ground running once in office. Since the election, Trump and his aides have apparently been making it up as they go. Nearly seven months into the first year of this presidency, the administration still does not have a realistic and coherent vision of what it wants to accomplish with respect to tax and spending policy.
True, the president released a budget. But it has no credibility because its assumptions are unrealistic and the spending cuts it contains are half-baked and presented with only the most flimsy of arguments in support of them. While President Trump campaigned on bringing business discipline to government, thus far nothing has emerged from the administration as a signature effort to downsize government and make it more efficient. There’s no list of realistic program terminations, agency closures, or consolidations of duplicate programs. Instead, the budget released by OMB Director Mick Mulvaney throws out a bunch of very deep spending cuts scattered among every domestic agency. The hope was that something — anything — might stick in Congress, but that’s unlikely. Congress plans to produce appropriation bills that ignore the president’s budget and are indistinguishable from the bills that would have been produced if Hillary Clinton had won the presidency.
On health care, the president has made it clear that he does not care what is in a bill to repeal and replace Obamacare, so long as he can say he achieved that goal. At various points, he was for the House repeal-and-replace plan, for the clean “repeal-and-delay” bill that Republicans passed in 2015, and for Senator Mitch McConnell’s last-ditch “skinny repeal” plan, which really was just a repeal of the tax penalties enforcing the Affordable Care Act’s individual mandate. When the Senate bill failed last week, it was clear that even if a bill did ever emerge from a House-Senate conference, it couldn’t pass in the Senate with major Medicaid reforms or with any real replacement of the major subsidy provisions of the ACA. Republicans are now saying “we were so close” to achieving victory, but the “skinny repeal” plan was the only thing that came close. And that shows the GOP is not, in fact, close to agreement on a workable plan to replace the ACA.
On taxes, it is still unclear if Republicans are going to press for a deficit-neutral tax reform plan, which would be both hard and worthwhile, or whether they want to secure a deep and temporary tax cut that increases the deficit. The president’s budget assumed a deficit-neutral plan, based on an unrealistic assumption of growth. The House Budget Committee passed a budget resolution that also assumes a deficit-neutral plan. But Sen. McConnell has suggested that the Senate may proceed with a tax cut, using budget reconciliation instructions. Which is it? The answer to that question is measured in trillions of dollars.
Tax reform would require Congress and the administration to make difficult and unpopular decisions — to eliminate loopholes, deductions, and credits that have constituencies. There is simply no evidence that the GOP is up to that task. President Trump clearly wants an easy and popular win, which points to big tax cuts. But there is no plausible plan to prevent such tax cuts from pushing deficits up very dramatically in the next decade. And this at a moment when the nation should be reining in deficits to prevent a fiscal crisis with an aging population and ballooning entitlement spending.
As Republicans spin their wheels, they have decided the reason they are not making more progress is the Congressional Budget Office (CBO). And so they have launched an ill-advised crusade to discredit the agency. One need not agree with all of CBO’s work — I certainly don’t — to see how dangerous it is for an administration to undermine an institution that is central to the policymaking process.
CBO’s recent assessment of the Trump budget is a clear demonstration of why the agency is indispensable. The review offers no commentary on the merits or demerits of the various ideas pushed by the administration. It simply assesses what their effects would be on the federal budget and the economy, using credible numbers. The Trump administration claimed its plan would reach balance in 2027, and that the 10-year deficit would be $3.2 trillion. CBO estimates that the deficit will be $736 billion in 2027, and the cumulative 10-year deficit will be $6.8 trillion — $3.6 trillion more than projected by the administration.
Further, CBO notes that the Trump budget assumes $1.9 trillion in health-care entitlement savings over 10 years, which effectively means cuts in the Medicaid program (since Trump does not want to reform Medicare). At this point, it’s not clear if Senate Republicans could pass $10 million in Medicaid cuts. CBO estimates the Trump budget will cut nondefense appropriated accounts by 11 percent in 2018, and by a total of $1.5 trillion over 10 years. These cuts are never going to be enacted by Congress because the administration has provided no credible rationale for enacting them. Setting aside the Medicaid and nondefense cuts, the Trump budget pushes the cumulative 10-year deficit up above $10 trillion — and that’s assuming a deficit-neutral tax cut. A big tax cut could easily increase total debt by an additional $2 or $3 trillion by 2027.
The Trump administration would like Americans to believe that the traditional forces of the status quo, embodied in the CBO, are what’s preventing progress. The truth is the administration doesn’t have a plan for progress yet. Until it does, the administration shouldn’t blame CBO for pointing out the obvious.
James C. Capretta is a resident fellow and holds the Milton Friedman chair at the American Enterprise Institute.