By Chad Selweski / 05.24.2017
President Trump’s budget unveiled today has received a storm of criticism as the administration proposes massive spending reductions while planning tax cuts that would most benefit the wealthy.
But a larger question has emerged: Could all of this fiscal pain fail miserably in its goal of ridding the U.S. of a federal budget deficit?
One aspect of this political/fiscal equation is the harsh condemnation displayed by bipartisan groups — deficit-hawks that hound Congress about the “difficult choices” needed to chop the federal deficit — who say the Trump budget proposal is unrealistic and cannot possibly achieve what is envisioned.
Despite all the proposed cuts in this “America First” document — $3.6 trillion over a 10-year timeframe — the budget deficit, as a percentage of the overall U.S. economy, the GDP, could actually grow to a level larger than it is now. Yet, Trump insists his path will produce a balanced budget.
The chief complaints among these serious-minded think tanks is that the budget plan relies upon a “rosy” projection of economic gains, assumes that all these cuts will be approved in full by the GOP Congress, and assumes that the nebulous tax cuts in the works will not decrease revenues at all.
Liberal Democrats and social service agencies point out that the unprecedented spending cuts would mostly affect the poor, the elderly and the disabled. They are hoping the president’s budget, following the well-worn path of so many White House spending plans over the past 30-plus years, is “Dead On Arrival” on Capitol Hill.
Many of the safety net programs targeted for extreme reductions already exist upon a path of long-term reductions compared to annual GDP growth. What’s more, the Congress in recent years has demonstrated no stomach for massive spending cuts.
According to some counts, the budget plan would eliminate 66 federal programs within the category of discretionary domestic spending – effecting everything from NASA and medical research to agriculture initiatives and the National Wildlife Refuge Fund.
Some bipartisan critics point out that the Trump plan would kill programs that work well in areas such as energy resources while leaving the military far short of funding goals Trump broadly outlined during the 2016 campaign.
Here is the detailed critique offered by the Concord Coalition:
President Trump’s first budget proposal … relies on improbable assertions of higher economic growth and unrealistic assumptions about future spending cuts to achieve its goal of balancing the budget in 10 years.
“The driving force of deficit reduction in this budget is the supposed super-charged economic growth effect of an unspecified tax cut,” said Concord Coalition Executive Director Robert L. Bixby. “That alone calls the credibility of the budget into question.”
The budget proposal purports to balance by 2027 and … it achieves that balance by assuming $3.6 trillion of spending cuts, and more than $2 trillion of feedback from economic growth. The growth assumptions are dramatically higher than both the Congressional Budget Office (CBO) and private sector forecasts. They are not supported by demographic factors and labor force productivity trends upon which economic growth ultimately depend.
“While it is certainly possible to attain above-trend growth in any given year, it is not fiscally responsible to base a budget on the assumption that such growth can be maintained permanently,” Bixby said.
The claimed budget improvement from economic growth is made all the more problematic by the overall lack of specifics on tax reform. There are no new tax reform details beyond the one-page summary that was released a month ago. Under any independent analysis of those details, tax reform would reduce revenue, yet this budget assumes reform would be revenue-neutral …
The cuts to non-defense discretionary spending are simply unrealistic given recent history; the last three budget agreements have, on a bipartisan basis, increased spending on these programs relative to levels set in the Budget Control Act of 2011 (“sequester” caps). In this (Trump) budget, such spending is cut by 42 percent in dollar terms (by) 2027 …
Even defense spending shrinks to close to half the historical average as a percent of GDP by 2027 (4.4 percent of GDP average vs. 2.3 percent of GDP), contradicting the administration’s own claims of the need to boost military spending.
On health care, the budget assumes enactment of the House-passed version of health care reform (the American Health Care Act). However, in addition to the AHCA’s $840 billion in cuts to Medicaid, the budget proposes $610 billion in further cuts to Medicaid. Ultimately, Medicaid would face a nearly 50 percent cut (by) the year 2027 relative to current law. The magnitude and rapidity of this reduction are unrealistic given the current debate over the AHCA in the Senate.
While growing health care costs, particularly in Medicare, are a far larger threat to long-term budget sustainability, the president’s proposal leaves Medicare untouched and offers no substantive reforms to reduce health care costs. It also repeals Medicare’s Independent Payment Advisory Board, setting back the cause of health care cost control.
The budget also proposes $72 billion in cuts to Social Security Disability Insurance while forgoing any changes to Social Security’s (traditional) Old Age and Survivors Insurance program, which is both much larger and serves a wealthier population. This approach would neither fix Social Security’s long-term financial challenges nor protect the program for those beneficiaries who depend on it most.
A serious grappling with the long-term fiscal challenges is needed through a budget that brings down the debt and confronts the trade-offs required to do so. Unfortunately, this budget does not do that.
The Center for a Responsible Federal Budget emphasized the unrealistic economic growth assumptions in the Trump budget:
The Administration’s projections of 3 percent economic growth are far above those of outside forecasters and would require exceeding the economic performance of the 1990s. Under realistic economic assumptions from the Congressional Budget Office (CBO), debt in the president’s budget would remain roughly at current levels rather than fall precipitously
… The unrealistic assumptions in the President’s budget help it to achieve substantial debt reduction and an ultimately balanced budget on paper but do nothing to assure a strong fiscal footing in reality. These growth numbers are not only unrealistically high … (they are) inconsistent with recent statements that economic growth would be used to help finance tax reform.
Rather than making unrealistic assumptions, the President must make the hard tax and spending choices needed to truly bring the national debt under control.
… The use of rosy growth assumptions sets a bad example for other budgets or major legislation that may be considered. Rosy growth assumptions may also open the door to dangerous deficit-increasing policies that may ultimately slow, rather than accelerate, economic growth.
Faster economic growth must be a central goal for policymakers, but it should not be a crutch used to avoid difficult choices.
Tracy Terry, director of energy research at the Bipartisan Policy Center, pointed out that the Department of Energy program known by the awkward Washington acronym Advanced Research Projects Agency-Energy, or ARPA-E, is slated for elimination by Trump. Yet, in the last Congress ARPA-E received additional funding through a bipartisan Senate amendment that passed by an 85-12 margin. The House offered a similar spending increase provision that breezed through on a voice vote.
Tracy said chopping key Department of Energy programs is counterproductive:
Countries like China are making enormous investments to develop new technologies that will dominate the market for years to come. Given how critical the moment is for American innovators, we are disappointed to see the president’s budget request suggests drastic cuts to programs with strong track records in job creation, economic growth and energy security that are critical to capturing future opportunities.
… These programs have a clear and distinguished track record as some of the best investments Congress has made.
Congressional support for energy research will be critical to creating jobs, ensuring low energy prices, and fostering energy security. We hope Congress will continue to appreciate the many benefits that investments in energy innovation provide the nation.”