On Monday, President Donald Trump unveiled the second budget proposal of his presidency, encompassing proposals affecting defense and non-defense funding for government agencies, tax changes, and funding for social insurance and assistance programs like Social Security, Medicare, Medicaid, and food stamps.
The budget broadly resembles the budget Trump released last year, and both closely follow budget plans put forward by House Speaker Paul Ryan when he was the House Budget Committee chair. Ryan’s previous budget proposals featured trillions in cuts to programs for the poor. While Trump largely leaves the non-disability portions of Social Security unscathed, and boosts funding for border security, veterans, and defense, he cuts just about everything else — including Medicare, which was largely spared in the fiscal year 2018 budget.
The new budget also calls for passing an Obamacare replacement bill that deeply cuts Medicaid to far below its pre-Obamacare levels, making the tax bill passed in 2017 permanent, and slashing food stamps dramatically.
As with last year’s, this budget assumes an extremely unrealistic economic growth rate — 3 percent, above the currently projected 1.9 percent. This assumption results in $3.1 trillion lower deficits than would otherwise result — which, since the budget claims $3.1 trillion in net deficit reduction through spending cuts, suggests the budget might not close the deficit at all if you use more realistic assumptions.
It’s an ambitious document that stands in marked contrast to the actual actions of the administration and its allies in Congress, who just last week agreed to a massive increase in non-defense discretionary spending, which this budget now proposes to cut by more than 40 percent.
1) What are the big takeaways from the budget?
According to the centrist, pro-balanced budget group the Committee for a Responsible Federal Budget (which, regardless of its political leanings, is a reliable source of rigorous budget analysis), the president’s budget has a total of $3.1 trillion in budget savings relative to current law. It includes $1.75 trillion in new spending and tax cuts, $3.7 trillion in deficit reduction that’s overwhelmingly the result of spending cuts, $800 billion in reduced spending on wars and disaster recovery, and $300 billion in savings due to lower interest payments on less debt.
The big proposed policy changes include:
- A 42.3 percent cut to all “non-defense discretionary” spending, from the currently planned level of $756 billion in 2028 to $436 billion. This category includes funding for government agencies like the Environmental Protection Agency and the State Department, certain safety net programs like Head Start, law enforcement spending at the FBI and Department of Justice, and scientific research through the National Institutes of Health and National Science Foundation.
- A 33.7 percent cut to the EPA, a 29.5 percent cut to the National Science Foundation, a 22.2 percent cut to the Army Corps of Engineers (a major infrastructure program), a 21.4 percent cut to the Labor Department, and a 26.9 percent cut to the State Department, among many other discretionary spending cuts.
- A $777 billion boost to defense spending over 10 years, paid for partially by reducing “overseas contingency operations” spending (also known as the war budget). By 2028, total defense spending will be lower, but over the next few years it will be significantly higher (7.9 percent higher in 2020, for instance).
- A 7.1 percent cut to Medicare by 2028, due to reforms meant to cut payments to providers and reduce wasteful treatment without limiting access to health care. The Affordable Care Act in 2010 included many similar provisions with related goals.
- A 22.5 percent cut to Medicaid and Obamacare subsidies by 2028, through repealing and replacing Obamacare.
- A 27.4 percent cut to SNAP (food stamps) and a 20.1 percent cut to Section 8 housing assistance by 2028:
- $550 billion in new tax cuts achieved by making the individual and estate tax provisions in last year’s tax bill permanent.
- $199 billion over 10 years for a new infrastructure program meant to generate $1 trillion through private partnership spending; this is offset by a 28.6 percent cut to transportation spending from 2017 to 2023, cuts which over the same 10-year period total $178 billion. Combined with cuts to water and other infrastructure programs, it’s not clear the budget actually spends more on infrastructure.
In addition to the raw number figures, there are a number of new proposals for how to run these programs. The budget endorses the Graham-Cassidy plan for repealing and replacing Obamacare, which entails massive cuts in Medicaid spending and devolving much of the federal health care budget to the states. It attempts to significantly reduce Medicare spending by adding new restrictions on when doctors can offer “self-referrals,” expanding the use of Accountable Care Organizations (ACOs), and other changes.
On food stamps, the budget would reduce the amount that recipients get in vouchers to spend on food of their choice and introduce “USDA foods packages,” “which would include items such as shelf-stable milk, ready to eat cereals, pasta, peanut butter, beans and canned fruit, vegetables, and meat, poultry, or fish” in order to “improve the nutritional value of the benefit provided and reduce the potential for … fraud.”
The budget would eliminate loan forgiveness for students who go into public service, do away with subsidized Stafford loans, and establish a new, unified income-based repayment plan for student loans. Borrowers would pay 12.5 percent of their discretionary income every month and have their balance forgiven after 15 years (for undergraduate debt) or 30 years (for graduate school debt). This is projected to save $203 billion over 10 years.
2) So are these changes going to happen?
No — not likely.
The president’s budget is not law, and it is not actually implemented government policy. It is an opening volley in a months-long decision-making process established by the Congressional Budget Act of 1974, in which the House and Senate set spending levels for the various government agencies.
To pass, Trump’s budget needs to get at least 60 votes in the Senate, meaning at least nine Democrats would have to vote for the budget cuts or at least refuse to filibuster. That’s not particularly likely to happen.
The main purpose of the budget request is to formally lay out the administration’s stance on fiscal policy. It details specific policy changes the administration wants, how much those changes will affect spending and tax revenue over the next 10 years, and how individual agencies will be affected along the way.
For example, President Obama’s final budget called for $312 billion in new infrastructure spending, $150 billion for universal pre-K and child care, and $60 billion to expand access to community colleges, paid for (and then some) by cuts in prescription drug spending, a cap on the value of tax deductions, new taxes on investment income, and more. The budget gave relatively precise estimates for how much each of these proposals was expected to cost or raise, respectively, and estimates of how this would affect the overall trajectory of the deficit (down) and spending and revenue levels (both up).
But you’ll notice that Obama did not actually get $312 billion in infrastructure spending, or a cap on tax deduction, or a tax increase on capital gains. That’s because the budget request is only the first step in the process, and all the most consequential decisions are made by Congress.
The second step in the process is for the Senate and House budget committees to propose, pass, and reconcile resolutions laying out detailed spending and revenue plans for the coming fiscal year. These resolutions often incorporate ideas from the president’s budget, particularly when the president’s party controls one or both houses of Congress — but they don’t need to.
When Paul Ryan was chair of the House Budget Committee, his plans incorporated little if anything from Obama’s budgets. If House Budget Chair Steve Womack (R-AR) and Senate Budget Chair Mike Enzi (R-WY) have significant disagreements with Trump’s budget priorities, or enough members of their committees do, then the resolutions they each pass through committee could differ sharply from Trump’s plan.
Once Womack’s and Enzi’s committees have passed resolutions, the full House and Senate have to pass them as well, and then the two bodies have to reconcile whatever differences exist between them. Then, finally, a reconciled joint House-Senate budget resolution can be passed by both houses. Notably, budget resolutions can’t be filibustered, and because they’re concurrent resolutions rather than laws, they don’t require the president’s signature either.
But because they’re not laws, budget resolutions do not enact new taxes or spending programs.
3) Okay, so Republicans in each House will pass a budget they agree on, and then it can’t be filibustered. Then the cuts take effect?
Not immediately; budget resolutions can’t enact that kind of change on their own. But they can enable it.
So far, Trump’s Congress has passed two budget resolutions: a FY2017 resolution meant to enable the passage of Obamacare replacement, and a FY2018 resolution that enabled the passage of last year’s tax bill.
They still need to pass a 2019 resolution, which can include reconciliation instructions that could enable the passage of some of the mandatory spending reforms in this budget, particularly the health care cuts and the cuts to safety net programs like food stamps.
It’s definitely possible that Paul Ryan and Mitch McConnell will decide to include reconciliation instructions that enable such cuts. But the Senate’s Republican majority is smaller than it was last summer, when it became clear that the massive health care cuts in the various Obamacare repeal-and-replace plans could not make it out of the Senate. There was just too much moderate Republican opposition, and this time around only two Republicans have to defect to kill a plan.
Still, if Republicans choose to, they can try to push through the mandatory cuts. The discretionary cuts, to agencies like the EPA, are a harder goal to achieve, since they cannot be included in a reconciliation bill. Thus, any bill that cuts their funding can be filibustered by Senate Democrats.
4) How big are the social program cuts included in this budget?
Massive. As with last year’s budget, this year’s includes some of the largest cuts to social programs and the safety net to be proposed by a president in decades.
The biggest proposed cuts, totaling nearly $2 trillion over 10 years, are to the non-defense discretionary budget. Those are also the least likely to take effect. Just last week, Republicans in Congress embraced significantly higher domestic spending levels, and in any case, discretionary cuts are filibusterable in the Senate. They can’t be achieved through budget reconciliation.
But the health care cuts can be achieved, and this time around, Trump has chosen not to spare Medicare, which his previous budget didn’t cut. He still wants to repeal and replace Obamacare, and in the process to cut Medicaid by either capping its per capita spending levels or block-granting it to the states. Either would dramatically reduce the program’s effectiveness. On Medicare, the administration’s focus is on trying to cut costs without reducing access to care by improving incentives to avoid wasteful treatments and changing how the program deals with providers.
The budget includes a bevy of cuts to non-health safety programs as well, most notably food stamps (which is cut by a quarter) and Section 8 Housing (which is cut by 20 percent). Disability programs also come in for cuts, and the budget includes a broad call for measures to improve “program integrity” by cracking down on faulty payments and making eligibility criteria stricter. The budget envisions such provisions raising $151 billion over the years. The budget also credits “welfare reform” measures (including the food stamps and Section 8 cuts) with $263 billion in savings over 10 years.
These are smaller net figures than the health care or discretionary cuts, but in percentage terms they are devastating to individual programs, some of which, like Low Income Home Energy Assistance Program (LIHEAP), are eliminated entirely.
5) What’s this about Trump’s magical economic assumptions?
Oh, right, those.
In the budget, Trump assumes that real GDP growth will reach 3 percent this year and then stay between 2.8 percent and 3 percent for the indefinite future. For context, in 2016 actual growth was 1.5 percent, and it was 2.2 percent in 2017.
Most economists don’t view 3 percent growth as realistic. Most private sector forecasters foresee growth closer to 2.15 percent, the Congressional Budget Office projects numbers between 1.4 and 1.9 percent, and the Federal Reserve expects growth between 1.8 and 2 percent in the long run.
In a supplemental document, the White House’s budget staff estimated what the budget would look like with 1 percent lower growth every year from 2018 to 2028. This is a considerably more likely assumption. The analysis concludes that with these different projections, the US will raise $2.9 trillion less in revenue and spend $216.6 billion more. In total, the deficit over those 10 years will be $3.14 trillion greater, and $646.9 billion greater in 2028 alone.
Recall, from the beginning of this article, that budget analysts had concluded the budget includes $3.1 trillion in claimed deficit reduction. More realistic economic assumptions are enough to wipe away those deficit reductions entirely.
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