New Budget, Same Story

New Budget, Same Story

The Trump administration’s fiscal year 2020 budget plan, which it released on Monday, will influence Congress about as much as the administration’s previous two budgets did, which is to say not at all.

That does mean it is entirely bereft of good ideas. The administration has offered up entitlement spending reductions totaling more than $2.2 trillion over ten years. Entitlement programs are growing faster than the rest of the budget, and have been for many years. It is essential for Congress and the president to get these programs under better control. In a less polarized environment, some of the budget’s more sensible reforms might get bipartisan consideration in Congress.

But, overall, the president’s budget plan is too disconnected from reality to be taken seriously.

The primary value of most presidential budgets is political, and this one is no different. The 2020 budget will allow the president to make certain claims, no matter their implausibility. He can say he proposed a budget that would achieve balance at the end of fifteen years, without raising taxes or cutting Social Security and Medicare benefits (the budget includes nearly $850 billion in Medicare savings over ten years, but the reductions hit those providing services to Medicare patients and do not require the beneficiaries to pay more for their care). He can also claim his plan would lower the government’s debt burden, from its current level of about 78 percent of GDP to 71 percent in 2029.

While the budget may serve this political purpose, the actual federal budget that will emerge from today’s unruly budgetary procedures will bear little resemblance to what the president has proposed.

The administration is touting a planned cut in domestic appropriations of 5 percent in 2020 compared to 2019. Spending on this small subset of government activity accounts for only 15 percent of the overall budget, and falling, but the administration still wants to make a point of cutting programs and agencies it believes are wasting resources or underperforming. There is certainly plenty of waste in government, and many programs continue to operate without demonstrating much value to taxpayers. The problem is that nearly every domestic program in the federal budget has a bipartisan group of defenders who block cuts and push for increases. They make common cause with defenders of other programs. Together they present a unified front against almost all reductions to this category of spending. For 2020, it is far more likely that spending on domestic appropriations will increase by 3 or 4 percent than be cut by 5 percent.

The administration’s budget plan doesn’t just assume unrealistic cuts for these programs in 2020. It assumes new cuts will be imposed by Congress every year for ten years. By 2029, spending on domestic discretionary accounts would be just $511 billion, down from $700 billion in 2020. There’s no precedent in post-war history for such a sudden, steep, and lasting reversal in domestic appropriations.

President Trump speaks frequently of reversing cuts in defense spending, and his budget plan would provide nominal increases for the military. But, relative to the size of the overall economy, defense spending would still fall rather dramatically, from 3.2 percent of GDP this year to 2.3 percent in 2029. That, too, is unlikely, given the many different international threats that are already visible and will compel the U.S. to maintain and increase its military capabilities.

If appropriations for defense and non-defense accounts remain constant, instead of decline, as a percentage of GDP, then the budget forecast will look very different from what is shown in the administration’s plan. In 2029, total appropriated spending would be 6.4 percent of GDP instead of 3.8 percent, adding an additional 2.6 percentage points of GDP to the deficit. The added spending would increase federal debt, and thus also the government’s interest payments.

The budget also assumes a major overhaul of Medicaid and spending provided in the Affordable Care Act (ACA), which would reduce federal outlays by $660 billion over ten years (other Medicaid reforms would reduce federal spending still further). This proposal builds upon legislation supported by Republican Senators Lindsey Graham, Bill Cassidy, and Ron Johnson, which would convert spending provided in the ACA into block grants to the states. States would use the funds to provide health insurance to their low-income populations. The federal government would step back and impose fewer rules on how the states run these programs.

Block grants have more support in theory than in practice. The Graham-Cassidy-Johnson legislation was never taken up in the Senate in 2017 or 2018 because it never had sufficient support to pass. States want more flexibility, but not at the expense of added financial risk. The odds of such a sweeping proposal ever passing are low regardless of how the bill is constructed, but if the legislation reduces federal funding going to the states below what is provided current law, as would be the case in the administration’s plan, there is no prospect of the idea getting any traction in Congress.

The administration’s budget plan also relies on aggressive assumptions of economic growth. In 2018, the U.S. economy grew 2.9 percent — the fastest pace in four years.  The budget assumes the economy will grow every year over the next decade by at least 2.8 percent. That’s about 1 percentage point faster than what other forecasters expect. If the economy grows 2 percent annually over the next decade, instead of 3 percent, the government will borrow trillions of dollars more than is projected in the administration’s forecast.

President Trump did not make fiscal restraint a priority in his 2016 campaign, and, since taking office, he almost never mentions the subject. The administration’s 2020 budget reflects his disinterest. It was not written to achieve any strategic objectives. Rather, it was put together to create the impression that the administration has a credible plan of fiscal restraint. An actual plan for deficit reduction will require a different political environment, and probably different leaders too.

James C. Capretta is a RealClearPolicy Contributor and a resident fellow at the American Enterprise Institute.

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