The Already Forgotten Trump Budget
The Trump administration was handicapped by unfortunate timing when putting together its 2019 budget plan. In December and January, as the administration was putting the finishing touches on the plan, Congress was still trying to come to an agreement on full-year appropriations for the current fiscal year. It is difficult to build a budget for next year when the current year has not yet been settled.
Still, even accounting for the difficult timing, the administration has produced a budget that is remarkable for its glaring disconnection from political and fiscal reality.
First, a little background. Presidents are supposed to submit their budget plans to Congress for the upcoming fiscal year, which begins October 1, by no later than the first Monday in February. The administration missed this deadline by one week. Congress, meanwhile, won’t pass full-year appropriations for defense and nondefense accounts for the fiscal year that began last October until March of this year.
An important reason for the hold-up on spending bills in Congress was a disagreement on the total amount of funding that would be available for discretionary appropriations. Republicans wanted to raise the cap on defense spending put in place by the budget agreement reached between President Obama and congressional Republicans in 2011. Democrats wanted to raise the cap on domestic accounts. Although it has been known for some time that an eventual agreement would lift both caps, it was not known until the deal was announced in early February how high the caps would go. The Trump budget was put together without knowing for sure where the deal on the caps would finally land.
But none of that justifies the flaws in the administration’s proposal.
The problem starts with the budget’s projections for discretionary spending. The Trump budget, like so many Republican budgets before it, assumes that Congress will soon embark on an ambitious and sustained effort to downsize domestic discretionary accounts. More specifically, the budget assumes spending on these programs will fall from 3.2 percent of GDP this year to just 1.9 percent of GDP in 2023 and to 1.3 percent in 2028. This despite the fact that key leaders in the Republican-controlled Congress have made it clear for months that they are rejecting essentially all of the cuts the administration proposed to these accounts in last year’s budget. Instead of cutting domestic discretionary spending, Congress and President Trump just approved legislation raising the caps on this slice of the budget by $63 billion in 2018 and $68 billion in 2019.
The difference between what is assumed in the Trump budget on domestic appropriations and what Congress will approve is vast. The Trump budget proposes aggregate, 10-year spending on domestic discretionary accounts of $5.0 trillion. If outlays on these programs grow just with inflation (which the recent budget deal shows is a conservative estimate), spending on these programs would exceed what is contained in the Trump budget by more than $2 trillion over 10 years.
The Trump budget also proposes to repeal the expansion of the Medicaid program under the Affordable Care Act (ACA), and to replace the law’s subsidies for health-insurance enrollment with new block grants to the states, modeled after legislation proposed by Senators Lindsey Graham and Bill Cassidy. In total, the budget assumes these reforms, along with other changes in the ACA, will reduce federal spending by $0.7 trillion over 10 years.
In 2017, the Senate failed three times to pass legislation rolling back the ACA. A primary obstacle was concern among some Senate Republicans about rolling back the law’s Medicaid expansion. Since those votes occurred, Republicans lost a Senate seat in Alabama, reducing their majority to 51 votes. There is very little prospect of the Senate approving a cut in Medicaid of the magnitude proposed in the Trump budget.
The Trump budget contains numerous other changes to entitlement programs, some of which deserve consideration. The administration would like Congress to take up welfare reform, focused on promoting work among benefit recipients, and to scale back the generosity of federal employee retirement benefits. The budget also includes proposals to cut Medicare spending by $0.5 trillion over 10 years, mainly through adjustments in how the program pays for various products and services.
Some of these ideas have merit, although most of them would be long-shots in Congress under any scenario because they are politically controversial. This year, they aren’t likely to be considered at all because the Trump administration has not made deficit reduction a priority. The president never even mentioned the budget deficit or federal debt in his State of the Union address. The administration is focused instead on immigration issues, new infrastructure spending, fighting the opioid epidemic, and other matters — all of which are likely to increase federal spending, not reduce it.
The Trump administration projects its budget plan will cut the 10-year deficit from $10.8 trillion to $7.2 trillion. This assumes the economy will grow at 3 percent per year or more through 2024. The recent two-year deal to increase defense and domestic spending will push deficits under current law up by at least $1 trillion (and more likely $2 trillion over 10 years) compared to the Trump baseline forecast. Throw in more conservative economic assumptions, and the projected deficits under current law could easily reach $13 to $14 trillion over the coming decade.
The Trump administration inherited a federal budget that was badly out of balance — and then promptly made the situation worse. True, on paper, the administration’s 2019 budget is filled with spending cuts. But these cuts aren’t likely to be taken seriously by anyone in Congress, in part because the president does not seem to take them seriously himself. The current trend toward growing deficits and debt will therefore continue, and likely get much worse.
James C. Capretta is a RealClearPolicy Contributor and holds the Milton Friedman chair at the American Enterprise Institute.
