March 16, 2017

A 'Skinny' Budget Blueprint from Trump That Ignores the Not-So-Skinny Drivers of the National Debt

Veronique de Rugy

Senior Research Fellow

President Trump and the Office of Management and Budget Director Mick Mulvaney released their first budget blueprint Tuesday. It's a 62-page document, called "America First: A Budget Blueprint to Make America Great Again." It lays out some of the priorities of the new president.

It's hard to call it a budget, though, since it doesn't have a baseline, it excludes 70 percent of government spending, it doesn't have any economic assumptions, or it doesn't tell us anything about how this administration is planning to manage our exploding debt. The administration will put a full-blown budget out in May.

With that in mind, here are a few takeaways from the blueprint:

1. It is a skinny budget indeed.

It only focuses on the discretionary side of the budget. That's roughly 30 percent of the budget. It is made of defense spending and non-defense spending programs like the ones in the departments of education, agriculture and others. Discretionary spending doesn't include any spending for programs like Social Security, Medicare, Medicaid and interest on the debt. Those programs belong to the mandatory side of the budget.

The budget is also for 1.5 years, rather than 10 years. To be fair, I have no faith in budget projections passed 5 minutes from now — in fact, I predict that these budget numbers are going nowhere. However, this document is particularly non-committal about big economic issues like the national debt and economic growth. It is interesting since the Director's message contains this paragraph:

Our $20 trillion national debt is a crisis, not just for the Nation, but for every citizen. Each American's share of this debt is more than $60,000 and growing. It is a challenge of great stakes, but one the American people can solve. American families make tough decisions every day about their own budgets; it is time Washington does the same.”

2. It tells us nothing about how the administration plans to stop the massive transfer of wealth from the relatively poor and young Americans to the relatively rich and old ones.

A discretionary-only blueprint means that we will have to wait until May to know how the administration plans to address the drivers of our debt: Social Security, Medicare, Medicaid and interest payments on our debt. Spending on these programs represent more than 60 percent of the budget. It is exploding, and if uncontrolled they will be an unprecedented transfer of wealth from young to older Americans.

Considering the president's promise to leave Medicare and Social Security untouched, it makes the following sentence from Director Mulvaney's message bizarre to say the least:
“The President's commitment to fiscal responsibility is historic. Not since early in President Reagan's first term have more tax dollars been saved and more Government inefficiency and waste been targeted. Every corner of the Federal budget is scrutinized, every program tested, every penny of taxpayer money watched over.”

I guess we will have to wait and see.

3. It claims to obey discretionary budget caps, except it doesn't.

While this budget sticks to the overall discretionary budget caps set by the Budget Control Act of 2011, it nonetheless breaks the law by breaking the defense caps. The Senate Policy Budget Committee explains:

Enactment of the president's proposed discretionary levels for both fiscal year 2017 and fiscal year 2018 would require a change in law, since breaching the defense spending cap would still trigger a sequester of defense spending, even if it is offset with nondefense spending reductions. The caps in defense and nondefense discretionary budget authority are separate.

The budget blueprint released today proposes increasing the defense caps in 2017 and 2018 and decreasing the nondefense caps in both years. In 2018, the blueprint proposes a decrease in nondefense spending of $54 billion. In 2017, the proposal is to decrease the nondefense caps by $15 billion. This reflects a $3 billion increase for border security and immigration enforcement, with an $18 billion decrease in other nondefense funding.”

4. It actually makes real budget cuts rather than baseline cuts.

It is refreshing to see that when the administration talks about cutting spending, it actually means actually cutting spending rather than reducing the growth of spending. Unfortunately, from what we see here, it limits cuts to the tiniest parts of the budget (non-defense discretionary) and spares defense spending, even though it could use a real clean-up.

5. It eliminates many non-defense discretionary programs but seems to omit crony Export-Import Bank from that list.

Here is the list of programs that we know for sure will be eliminated in this budget:

The Budget also proposes to eliminate funding for other independent agencies, including: the African Development Foundation; the Appalachian Regional Commission; the Chemical Safety Board; the Corporation for National and Community Service; the Corporation for Public Broadcasting; the Delta Regional Authority; the Denali Commission; the Institute of Museum and Library Services; the Inter-American Foundation; the U.S. Trade and Development Agency; the Legal Services Corporation; the National Endowment for the Arts; the National Endowment for the Humanities; the Neighborhood Reinvestment Corporation; the Northern Border Regional Commission; the Overseas Private Investment Corporation; the United States Institute of Peace; the United States Interagency Council on Homelessness; and the Woodrow Wilson International Center for Scholars.”

These are great programs to eliminate. The programs targeted for elimination are often not achieving their stated goals, they waste taxpayers' money, and they are not appropriate responsibilities of the federal government.

It's not that I believe Congress will actually eliminate these programs. If history is our guide, you don't get spending cuts and end corporate welfare when Republicans are in control. But symbolically, this is important.

So why not include the Export-Import Bank? It's a program that extends massive taxpayer-backed subsidies to foreign companies, including ones in China, for the benefit of a few large U.S. companies at the expense of many unseen victims in the U.S. It's particularly disappointing considering that Ex-Im was rumored to be on the chopping blocks.

6. The budget jacks up defense spending by $54 billion because apparently $549 billion isn't enough to defend our country in peacetime.

Under current law, defense spending was supposed to be $549 billion in 2018. That's not too shabby if you ask me. To be sure, the Defense Department could make this money go further if it actually spent it strategically, as opposed to following spending patterns from a long-gone era.

It could reform entitlement programs which consume more than 50 percent of the Department of Defense's budget. It could reform its acquisition program too. Unfortunately, from the few details we are given here, this is not what's happening. Instead, the administration plans on adding another $54 billion to defense and spend $603 billion in 2018. It's irresponsible, to say the least.

7. Defense spending increases are paid for, that's good. But…

It's a good thing that this president is trying to pay for his increase in defense spending by cutting spending elsewhere. However, it is a terrible idea to concentrate the spending cuts on such a small part of the budget: non-defense discretionary spending.

Don't get me wrong, I agree with the spending cuts proposed in the budget. But I think it is a political loser to hammer that part of the budget alone. Remember the Gramm-Rudman-Hollings Deficit Reduction Act of 1985? While a great idea on paper, it failed for that same exact reason that all increases to the deficits were going to be paid for by cuts to non-defense discretionary programs. These cuts were perceived as too big to be acceptable. Obviously, Republicans never learn.

As my colleague William Beach, vice president of policy at The Mercatus Center at George Mason University, correctly concludes:

[The skinny budget] looks like a war-time spending plan, much like Reagan's response to aggressive Soviet behavior in the late 1970s. Beyond that, what can we really say? It has no economic or budget assumptions, no baseline, no mandatory spending plans (that's 2/3rds of current outlays), no plans for raising or managing the national debt, and no long-term budget plan. There's nothing on managing the federal government, which presumably is Trump's strong suit. It's like Ford announcing their annual world-wide business strategy by rolling out the Delco Batteries operating plan. It is probably worse, since it gives the impression of budgeting thoughtfulness, but ends up like any litany of complaints you could hear in any up-scale bar in town.”