The White House on Monday published President Trump’s fiscal year 2019 budget, which calls for significant cuts to federal spending but does not call for balancing the budget within the next 10 years.
The White House budget, written by budget director Mick Mulvaney, is a request to Congress regarding spending and tax policy, and a statement of Trump’s priorities. It is not law or legislation, and is certain to be largely ignored by Congress.
However, it does correspond to the spending cap agreement that lawmakers reached last week, which would break through the previously agreed discretionary spending limits and boost both defense and non-defense spending over the next two years.
Like Trump’s budget last year, the document calls for major spending cuts to domestic government programs. Altogether, the called-for reductions would lower the total by about $3 trillion over the next 10 years compared to current spending levels.
Those spending cuts would mean that the federal debt would eventually fall as a percentage of GDP, from around 75 percent of the economy today to 73 percent at the end of the decade. But the budget wouldn’t balance in any of the next 10 years.
In 2019, the deficit would widen to $984 billion, and then rise to $987 billion, or about 4.5 percent of GDP in 2020. In subsequent years it would decline, all the way to $363 billion or just over 1 percent of GDP in 2028. If the deficit grows slower than the economy, then debt relative to the economy shrinks.
The lack of a balanced budget, though, deprives Mulvaney of the talking point that he has drafted a plan for balancing the budget — a goal long sought by conservatives, who criticized President Obama each year for proposing budgets that never balance.
The difficulty for Mulvaney in balancing the budget is that Trump just signed a tax overhaul that is estimated to lower revenues by around $1.5 trillion over the next 10 years, and a spending deal that will add $320 billion to the deficit in the next two years. Those deficit-widening pieces of legislation cut against the goal of bringing spending and taxes into alignment.
Mulvaney’s budget also included new spending for some of Trump’s priorities, such as an infrastructure program, a greater federal response to the opioid crisis, and funding for a wall on the southern border.
Based on that agreement and the White House budget, Trump seems unlikely to significantly cut government programs in the years ahead. While the budget calls for cutting domestic spending around 40 percent on paper, in reality, Trump just signed legislation increasing spending.
The spending deal reached between Senate Majority Leader Mitch McConnell and Democratic Leader Chuck Schumer would pave the way for much higher spending over 10 years, adding around $2 trillion to the debt when interest costs are considered, according to the Committee for a Responsible Federal Budget.
In that scenario, the federal debt would rise from 75 percent of gross domestic product today to over 100 percent by the end of the decade. That would rival the debt run-up to pay for World War II.
On the campaign trail, Trump sent mixed messages about his desire to reduce the debt. At one point, he suggested that he would be able to pay off the federal debt within two terms. At other points, though, he called himself “the king of debt,” advertising his comfort with high levels of debt.
Congressional Republicans who have called for balancing the budget or lowering the debt typically favor spending reductions through changes to entitlement programs like Social Security and Medicare, which, together with interest costs, account for the bulk of government spending.
“We have shown — us House Republicans — what you need to do to fully deal with this debt crisis, and it is entitlement reform,” House Speaker Paul Ryan said Thursday.
In a statement, House Budget Committee chairman Steve Womack said that his panel would aim to balance the budget in its version of the fiscal year 2019 budget.
For his part, Trump has said that he won't touch entitlement programs, according to Mulvaney. But the budget does include $236 billion in Medicare spending savings, which the OMB says will come from reforms to "wasteful" spending on drugs.
Like last year's budget, the document also calls for major savings via repealing and replacing Obamacare, something Republicans tried and failed to do last year.
Similarly, the biggest spending reduction in the budget comes from the imposition of the "two-penny" plan, which would reduce domestic discretionary spending by two cents on the dollar each year. Over time, that would result in major cuts to spending on almost everything the government does outside of funding the military and paying for entitlements, including job training, law enforcement, regulation, housing assistance, and much more. The two-penny plan would result in $1.5 trillion in spending cuts — but would require a major reversal of the budget deal just signed by Trump.
"These cuts to critical federal investments are so extreme they can only reflect a disdain for working families and a total lack of vision for a stronger society," said Rep. John Yarmuth of Kentucky, the top Democrat on the Budget Committee.
The budget also rests on the assumption that Trump's policies will result in a sustained period of strong economic growth, assuming that inflation-adjusted GDP growth exceeds 3 percent every year until 2026. Federal Reserve officials, in comparison, see growth coming in much slower, at below 2 percent.