Marc Goldwein: President Trump’s Budget Defies Gravity
Marc Goldwein is the senior vice president and senior policy director of the Committee for a Responsible Federal Budget. He recently wrote an opinion piece that appeared in Newsweek. It is reposted here.
President Donald Trump’s first budget claims to cut taxes, strengthen the military, and balance the budget all while ‘protecting’ our three largest spending programs, Social Security, Medicare, and defense, from any major cuts.
If this sounds too good to be true, that’s because it is. President Trump’s budget practically defies gravity.
Presidents turn the poetry of campaigning into the prose of governing in their first budget. Promises of expensive new initiatives, tax cuts for all, and massive debt reduction give way to the reality that these three goals are in conflict, and are not all possible.
Ordinarily, budgets, unlike campaign speeches, deal with trade-offs. They make choices.
Although the budget does include some smart policy changes, behind the numbers is a budget largely built on illusion. It relies on omissions, heroic assumptions, and slights-of-hand to make the numbers work.
Take the Administration’s economic growth assumptions. Every public and private forecaster from the Congressional Budget Office (CBO) to the Federal Reserve to the Blue Chip companies think the US would be lucky to achieve sustained 2 percent real growth over the long run. Yet the Trump Administration claims an average growth rate of 3 percent, something that, wouldn’t happen with an aging population even if we had the economy of the 1990s.
Remove that assumption and you can kiss a balanced budget goodbye. My colleagues have estimated that under realistic economic assumptions the federal debt remains close to today’s record high 77 percent of GDP, rather than falling to 60 percent of GDP by the end of the decade as the White House claims. The deficit, meanwhile, would remain above $600 billion per year, rather than disappearing by 2027.
Or take the Trump Administration’s proposed non-defense discretionary cuts, most of which are both unspecified and unachievable.
Earlier this year, the White House proposed more than $50 billion per year in spending cuts on everything from foreign aid to the Environmental Protection Agency. People may not have liked these cuts, but the cuts were specific and detailed.
This budget supplements those cuts with an $850 billion magic asterisk. A “2 penny plan” that simply assumes an entire category of spending will be reduced dramatically over time without saying where the cuts will come from. The result is that by the end of the decade, non-defense discretionary spending would only be a bit more than half of what it is today.
Then there is the case of the missing tax reform. For the last month, and really for more than a year, the White House (and before that, the campaign) has been touting a plan to reduce the business tax rate to 15% - from 35% for corporations today – while also cutting tax rates and some tax breaks for individuals and businesses of all stripes. That tax plan is virtually absent from the budget, save for a few bullet points.
Given the complexity of tax reform, the Trump Administration can be forgiven for not having every detail worked out. Nonetheless, their budget assumes no revenue loss from tax reform, even as our most recent estimate of what they’ve proposed so far pegged the cost at $5.5 trillion.
Very likely, the Trump Administration will find a way to bring that cost down by cutting more tax breaks. However, the budget doesn’t show us how much, or how. It doesn’t even give us clues.
In fact, they rely on the economic boost from tax reform to help pay down deficits, even though in the past the Administration has said that money would go to pay for tax reform.
Even if the Administration were able to reduce the cost of their $5.5 trillion tax plan in half, it would still spell bad news for their goal of balancing the budget.
If you remove the fanciful economic growth and unspecified cuts, and you add in the invisible tax plan, you get a budget that not only does not balance, it no longer reduces the deficit at all.
Those three adjustments, taken together, cost more than $6 trillion over a decade and would lead debt to rise from a post-war record high 77 percent of GDP today up to above 90 percent of GDP by 2027.
All the true spending cuts in the budget, and many of them are worthy of consideration, would do nothing to reduce the debt, and instead go to new spending and tax cuts.
Here’s the reality: we can’t get everything we want. We can’t balance the budget and cut taxes, increase defense spending, and ignore the main drivers of our rising debt.
Anyone who tells you otherwise is selling snake oil.
"My Views" are works published by members or staff of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the Committee.