President Trump likely will release his first full budget blueprint for spending, entitlements and tax reform next week, and policy experts already are bracing for a good deal of presidential wishful thinking and budget gimmickry.
While Trump has vowed to use his proposed fiscal 2018 budget plan to make good on costly campaign promises to dramatically boost spending on defense and homeland security, begin building a wall along the southern border and slash corporate and individual taxes, he also reportedly will offer his vision for wiping out the federal deficit with the next ten years.
As Roll Call first reported last week, White House budget director Mick Mulvaney and other administration officials are piecing together a decade-long plan to achieve a budget surplus for the first time since 2001. The government finished the last fiscal year with a $587 billion deficit. The new administration insists it can obliterate the deficit through a combination of steep cuts in certain means-tested entitlement programs, other savings and “robust economic growth” to help drive up federal tax revenues.
Treasury Secretary Steve Mnuchin, National Economic Council director Gary Cohn, and other senior Trump officials are bullish on the economy and believe it will help them dig the country out of huge deficits and debt. They are predicting that Trump’s tax cuts and other reforms will spur an economic growth rate of 3 percent or more in the coming years, and in the process, generate trillions of dollars of fresh tax revenues.
The Congressional Budget Office (CBO), no stranger to Republican “supply side economic” claims about the economic power unleashed by tax cuts and loophole closings, in January projected just 1.9 percent average growth in the Gross Domestic Product through 2027, absent some significant change in fiscal policy.
However, Trump, House Speaker Paul Ryan (R-WI) and other House and Senate leaders say they are determined to push through major corporate and individual tax cuts before the end of the year that would begin to put the economy on track to a record growth rate.
Mnuchin insists that Trump’s economic plan “will grow the economy and will create massive amounts of revenues, trillions of dollars in additional revenues.” However, David Stockman, the budget director in the Reagan White House in the 1980s, said this week he is highly skeptical of Trump’s promise of historic economic growth.
"The idea that some combination of loophole closing plus added growth would pay for this 7 1/2-trillion-dollar revenue loss that they're talking about, I think is just completely fanciful and irresponsible," Stockman told National Public Radio.
Trump’s budget plans are fluid and could change in the coming days. The Republican president repeatedly vowed during the campaign that he wouldn’t cut Social Security or Medicare to help offset his spending plans and move towards a balanced budget.
But Roll Call says his budget will call for $800 billion of cuts to projected spending in a wide array of means-tested, mandatory spending programs including Medicaid over 10 years. The proposed reductions in Medicaid would go beyond the $880 billion of cuts contained in the House-passed health care overhaul.
Trump’s budget proposal will also ask for $54 billion increase in defense in fiscal 2018, offset by $54 billion in nondefense discretionary cuts.
While there is still considerable uncertainty over what the final version of Trump’s new budget will look like, analysts say it’s inevitable it will include many time-tested budget gimmicks and tricks to try to make the numbers add up.
The Committee for a Responsible Federal Budget, a venerable budget watchdog, is urging Trump and the GOP-controlled House and Senate Budget Committees to strive for more honesty in the upcoming budget process.
“These gimmicks can make a budget look better and more responsible on paper while often opening the door to irresponsible policies that worsen the debt and sometimes even damage the economy,” the CRFB said in a new report.
Here are eight gimmicks that Trump and congressional Republicans may find irresistible to use:
Rosy Growth Assumptions: The budget should avoid “rosy scenarios” for economic growth popular during the Reagan era that give the mistaken impression long term spending is under control when in fact it is not. To be credible, both the Trump and congressional budget resolutions should rely on reasonable growth assumptions that are similar to those of CBO.
Three-percent sustained growth rate over the coming decade would be great to have, and would likely stabilize the debt-to-GDP ratio. But with a fast gaining population, achieving that level of growth “would be quite unlikely and would require a heroic mix of smart policy and very good luck,” the report says.
Arbitrary Policy Expiration Dates: Policy makers often find themselves locked in a box in attempting to cut taxes or increase spending without breaching restrictions on deficit spending beyond a 10-year budget window. A common gimmick is to take policies that are intended to be permanent but assume for the sake of the budget process that they are temporary.
But this can be risky, especially in creating a new tax and spending policy that businesses and individuals come to count on, only to see the policies expire and threaten to send the economy over a “fiscal cliff.” Only last minute intervention by Congress and the Obama administration averted a fiscal cliff on Jan. 1, 2013.
Magic Asterisks and Unspecified Savings: Magic Asterisks are a distant cousin of rosy scenarios that assume a certain amount of savings or revenue with no path to actually achieving those savings. The president’s budget typically advances specific spending and tax proposals to meet its fiscal goals while congressional budget resolutions propose spending levels for specific functions and revenue.
Ideally, the president should fully account for every dollar of new tax revenue or spending cuts, while congressional savings levels should be reasonable and backed up with specific examples that could legitimately cover the costs. But don’t count on that.
Baseline Games: Under official scoring rules, tax and spending changes are measured relative to CBO’s “current law” baseline projections of federal revenues, outlays, and the surplus or deficit for the coming years. Though this baseline is far from perfect, it serves as a reasonable benchmark.
Presidents and congressional leaders often grumble about the CBO baseline, especially when adjusting it for anticipated changes in tax and government stimulus spending could make their policies appear far less expensive budget neutral. “Not all baseline adjustments are meant to deceive and mislead, but those that are should not be a part of any responsible budget,” the report warns.
Arbitrary Budget Window Changes: The Senate’s Byrd Rule has been the source of much grief for Republicans for the past few months. It blocks budget reconciliation packages from adding to the federal deficit in the years outside the budget window, limiting the kind of changes a slim Senate majority can make through that process. One way to pass a bill more to their liking would be to simply extend the budget window -- something CRFB says would “simply allow for more years of deficit-financed spending increases or tax cuts.”
Unrealistic Policy Proposals and Assumptions: Budget proposals can often seem completely detached from political reality, pretty much always in a way that makes the administration’s numbers look better than an independent analysis would suggest. For example, a proposal that relies on large entitlement spending cuts to balance large tax cuts is probably ignoring what’s politically possible to signal support for lower taxes.
Abuse of OCO: One of the most popular gimmicks used in recent years to create the veneer of plausibility for budget proposals has been to use a special category for paying the cost of ongoing wars, unconstrained by budget caps, as a slush fund. The Overseas Contingency Operations fund, because it isn’t subject to budget caps, is often used as a back door to sneak additional military spending into the budget.
“To the extent policymakers view either as too low, they should adjust the caps explicitly and then offset the costs on the mandatory and/or revenue side of the budget,” CRFB writes. “The OCO designation should be used to fund actual war spending, not to evade fiscal responsibility.”