What We’d Like to See in President Trump’s FY 2020 Budget
Reports suggest the Trump administration will release its FY 2020 budget in two parts, beginning next week.
With debt at post-war record highs, deficits expanding, sequester-level caps scheduled to return in the fall, and the debt ceiling back in effect, the White House has the opportunity to lead on fiscal issues this year. Leadership should begin with a thoughtful and responsible budget proposal.
From the standpoint of fiscal responsibility, we believe President Trump's third budget should:
- Put Debt on a Clear Downward Path Relative to the Economy. The national debt is currently higher than at any time since just after World War II – and if recent tax and spending bills are extended, it will reach that all-time record in just over a decade. Debt cannot grow faster than the economy indefinitely, and the President’s budget should slow debt growth to allow the economy to catch up.
- Pay for New Initiatives with Specific Offsets. When you're in a hole, stop digging. Rather than charging new tax cuts and spending increases to the national credit card, all new initiatives should be fully offset with lower spending and/or higher revenue. The same rule should apply to the extension of existing policies that have not already been scored as a cost.
- Propose Realistic and Responsible Discretionary Spending Levels. While the President has called for large reductions in discretionary spending in his past budgets, he has signed into law large increases. The 2018 Bipartisan Budget Act increased discretionary spending caps by about $150 billion per year in 2018 and 2019, leaving a massive cliff for 2020. Rather than calling for an unrealistic 10 percent ($126 billion) reduction or an unaffordable extension of current policy, the President should propose defense and non-defense spending levels that are reasonable and responsible, ideally setting in motion a glide path to responsible discretionary spending levels that are achievable and affordable.
- Avoid OCO gimmicks. Press reports suggest that the President may restore "base" defense spending to sequester levels while increasing actual defense spending by about $100 billion using the "Overseas Contingency Operations" (OCO) designation. OCO is meant to fund actual war spending, not ordinary defense spending. The administration must avoid this flagrant budget gimmick or any other efforts to circumvent the discretionary spending caps.
- Use Realistic Economic Growth Assumptions. Previous budgets relied on achieving sustained 3 percent economic growth, a number far beyond outside forecasts. Achieving it would require exceeding the economic performance of the 1990s. Rosy growth assumptions should not be used to paper over the dire fiscal situation, especially while CBO projects real growth to fall below 2 percent over the next decade.
- Avoid Gimmicks and Unspecified Savings. As a general rule, the budget should avoid relying on timing shifts, “magic asterisks” (placeholders that assume budgetary savings without policies to back it up), inflating savings, or other gimmicks designed to make the budget seem more responsible than it is. To the greatest extent possible, all policies should be detailed and rigorously scored. Read about possible budget gimmicks to avoid here.
- Promote Entitlement Reforms to Slow Cost Growth and Improve Solvency. Social Security and Medicare are the two largest spending programs and among the fastest-growing – and both are on a path toward insolvency. To improve the long-term debt outlook and secure the health of these programs, the President must advocate for significant reforms to slow the growth of and finance both Social Security and Medicare, as well as other entitlement programs.
- Propose Additional Revenue. While the administration originally called for revenue-neutral tax reform, the 2017 tax bill will ultimately add $1.5 to $2 trillion to the debt by 2028 – even before extensions. The budget should put forward new revenue, ideally at least enough to offset the effects of the tax bill. One place to start would be to propose changes to improve the tax bill by closing new loopholes and cutting tax breaks missed by the original bill. The administration could also consider selective extensions so continuing the TCJA does not add further to the deficit. Other revenue options to fund the Highway Trust Fund and improve tax compliance should also be on the table.
Debt and deficits have long been on an unsustainable long-term trajectory. Lawmakers have made this situation far worse, and in fact are responsible for the majority of this year's projected $900 billion deficit. Never have deficits and debt been this high when the economy was this strong.
As policymakers face major fiscal decisions later this year, the President's budget has the potential to be a first step down a more responsible path.