President Trump on Monday unveiled a $4.8 trillion budget that the administration is touting as a serious effort to tackle the problem of rising deficits. In reality, it’s a demonstration of why the United States is fiscally doomed.
The Trump budget aims to show that the U.S. can start to get the debt under control while increasing defense spending and avoiding tax hikes or structural changes to Medicare and Social Security. It does so by promising to slow the growth of nondefense spending significantly while endorsing smaller, Obama-era reforms to Medicare and changes to Medicaid. The budget proposal leans heavily on optimistic assumptions that economic growth will remain strong and interest rates will remain low for the next decade.
To be clear, the Trump budget has no chance of becoming law, because Congress has already signed an agreement that will allow lawmakers to punt on the spending issue until after the 2020 election. There’s little reason to believe that Trump will fight hard for any of the spending reductions he’s outlined in the latest budget document. In the past several years, he has proposed budgets vowing to make deep cuts to discretionary spending and to restore fiscal sanity, only to sign whatever Congress sends to him. The budgets he has allowed to become law have allowed spending to blow past the limits that were put in place as a result of Tea Party pressure during the Obama era, and there’s no reason to believe anything would work out differently this time.
So, how does Trump’s budget at least claim to reduce deficits by $4.6 trillion while boosting defense spending and avoiding tax hikes or serious entitlement reform? It promises to increase defense spending slightly but reduce nondefense discretionary spending by $1.6 trillion. Using an Obama-era accounting gimmick, it takes an inflated assumption of what the U.S. would otherwise be spending on war (known as “overseas contingency operations”) and claims $567 billion in savings against the baseline. There are cuts to government “waste” and foreign aid.
The budget also relies heavily on optimistic economic assumptions, which help shrink deficits by increasing revenues and reducing dependence on safety net programs. In every year over the next decade, the Trump budget anticipates that the U.S. will grow anywhere from 2.8% to 3.1% (that’s the change in gross domestic product in one year’s fourth quarter from the prior year’s fourth quarter). To provide an idea of how unrealistic that is, in 2018 and 2019, which Trump touted as amazing economically, growth was at 2.5%. The new budget numbers are based on the idea that the U.S. will do better than this — for a whole decade.
In addition to the optimistic growth assumptions, with interest rates at historically low levels, the new budget assumes that they will be lower than currently projected, reducing net interest payments by another $600 billion.
It also proposes $2.3 trillion in savings on the mandatory side of the budget ledger, which is where the bulk of the U.S. budget goes. Trump, facing reelection, has reiterated his pledge not to overhaul Medicare and Social Security. What his budget does to achieve mandatory savings is to revive various Obama-era proposals to reform the way medical providers are paid through Medicare. At the same time, he would impose more work requirements on able-bodied recipients of Medicaid, food stamps, and other social welfare programs. This will allow him to tout seriousness about deficits to critics among the dwindling ranks of budget hawks while beating back Democratic attempts to argue he plans to gut Medicare.
In a meeting previewing the budget, Office of Management and Budget Director Russell Vought anticipated the criticism of those who press for more substantial structural reform to the nation’s entitlements.
“If you’re someone who cares about spending, is there any other game in town?” Vought asked. “There’s no one out there that’s putting forward spending reductions, other than this president.”
Yet that may be all the more reason to be significantly concerned about the nation’s fiscal future. Trump’s budget reflects the political reality that neither he nor congressional Republicans have the appetite for large-scale changes to entitlements along the lines of what was proposed by Paul Ryan. At the same time, they want to keep increasing military spending and, if anything, cut taxes further. Trying to narrow the deficit within these parameters requires substantial cuts to nondefense discretionary spending that are just as unlikely to be adopted and sustained by Congress as any serious reforms to entitlements. Other than that, his budget plan is based on a hope that the economy stays strong forever, and that the markets never get concerned enough about growing debt to demand much higher interest rates.
To provide an idea of how much Trump’s past budget proposals have differed from reality, I looked back at the first budget Trump released in 2017, which outlined his vision for the years 2018 to 2027. Trump’s first budget projected the federal government would run a total of $3.2 trillion in deficits from 2018 to 2027. Combining results from 2018 and 2019 with the revised projections, the Trump proposal is now expecting $7.5 trillion in deficits — that’s a $4.3 trillion increase in projections in just the first three years of his presidency. And instead of running a small surplus by 2027, as under his first budget, the new budget expects a $435 billion deficit that year. In just 2018 and 2019 alone, deficits were nearly double what Trump projected they would be in the first two fiscal years of his presidency, or $1.8 trillion vs. $966 billion.
What’s likely to happen in any theoretical second Trump term is the same as what has happened in his first term. Opposition to structural entitlement reform combined with a push to increase defense spending and cut taxes. Bold talk of reducing nondefense spending during budget season, followed by him rubber-stamping whatever garbage Congress sends to his desk.
