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White House budget proposes increase to defense spending and cuts to safety net, but federal deficit would remain

The White House's spending priorities for 2018 renege on President Trump's promises to lower the deficit and keep Medicare and Medicaid spending without cuts. (Video: Jenny Starrs/The Washington Post, Photo: Jabin Botsford/The Washington Post)

The White House released a tax and spending plan Monday that would not eliminate the federal budget deficit after 10 years, its first public acknowledgment that large spending increases and the $1.5 trillion tax cut are putting severe pressure on the government’s debt.

The proposal, titled “Efficient, Effective, Accountable: An American Budget,” sets forth President Trump’s priorities as Congress prepares to consider spending bills for the next fiscal year.

The plan would continue to markedly increase military spending and set aside money for a wall along the U.S.-Mexico border. It seeks to authorize $4.4 trillion in spending for 2019, up 10 percent from the amount of money the government spent in 2017.

The plan also calls for major cuts to Medicare, Medicaid, food stamps and other social programs — reductions that conservatives have long sought.

But even with these reductions, which add up to more than $3 trillion in cuts over 10 years, the proposal would not bring the budget into balance because of the lost tax revenue and higher spending on other programs.

The White House projects a large gap between government spending and tax revenue over the next decade, adding at least $7 trillion to the debt over that time. In 2019 and 2020 alone, the government would add a combined $2 trillion in debt under Trump’s plan.

Even with upbeat economic forecasts and numerous proposed cuts to social programs — most of which are expected tol be dead on arrival in Congress — the Trump administration projects that it would run a deficit of $450 billion in 2027.

Last year, the White House projected its tax and spending proposals would lead to a budget surplus of $16 billion in 2027, which meant the government would have brought in more money through taxes than it spent on programs, something last accomplished in 2001.

The budget plan was met cooly by many Republicans.

“Budgets are aspirational documents and seldom have a real impact on spending,” said Rep. Mark Meadows (R-N.C.), chairman of the conservative House Freedom Caucus. “Certainly I applaud the president’s willingness to address our military, veterans and many suffering from the opioid abuse epidemic. I am not investing much time critiquing the budget when it has little to do with what Congress actually spends.”

Democrats, though, reacted with hostility, saying the proposal confirmed their long-held belief that Trump would pivot from large tax cuts for corporations to a push to scale back government benefits for low-income Americans.

“The Trump budget proposal makes clear his desire to enact massive cuts to health care, anti-poverty programs, and investments in economic growth to blunt the deficit-exploding impact of his tax cuts for millionaires and corporations,” Rep. John Yarmuth of Kentucky, the top Democrat on the House Budget Committee, said. “These cuts to critical federal investments are so extreme they can only reflect a disdain for working families and a total lack of vision for a stronger society.”

The biggest factor in the White House’s deficit problems appears to be issues caused by the tax law — problems the Trump administration had previously refused to acknowledge would occur.

The White House had promised that last year’s tax-cut plan would pay for itself by generating so much revenue through growth that it would not add to the deficit. This ran in sharp contrast to numerous forecasts that found that the overhaul would add $1 trillion to $2 trillion to the debt over 10 years.

Monday’s budget proposal paints a much different picture of the tax plan’s eventual effect than what the Treasury Department and the White House had projected. It forecasts that tax revenue will plummet in the next few years and never recover to the levels forecast before the tax plan was enacted in December.

It projects that tax receipts will be $314 billion lower in 2018 than it forecast last year and almost $400 billion lower in 2019.

The White House even projects that tax receipts will be $200 billion lower in 2027 than forecast last year, even though it had promised that the plan would fully pay for itself by then.

But that projected deficit is lower than the Congressional Budget Office offered last year, meaning the White House believes large amounts of economic growth will create $400 billion in extra revenue, compared with what would happen if the tax law wasn’t passed.

Republicans have long called for eliminating the budget deficit, but Trump has ushered in a new economic strategy, jettisoning deficit fears in favor of a low-tax, high-spending model that he thinks will boost the economy. Such an approach has risks, particularly as government debt levels are projected to grow at least $7 trillion over the next decade.

The budget and deficit problems actually may be much worse than the White House’s budget sets forth. That’s because some of the spending cuts would be difficult to pass through Congress.

For example, the budget would cut $554 billion from Medicare spending over 10 years.

Medicare is the federal program that provides health benefits to older Americans, and more than 55 million people used the program last year.

The proposed changes to Medicare include changes to drug pricing. The government would reap $47 billion in savings over a decade from a change to Medicare prescription drug plans that would have seniors progress more slowly through the coverage gap known as the “doughnut hole.” Far fewer people would reach the catastrophic phase, where they pay 5 percent of the drug cost — and where Medicare is on the hook for 80 percent.

That change could increase out-of-pocket costs for some seniors, but others would have a protective effect. The budget also says that the rebates negotiated on drug prices should be provided directly to seniors when they pick up their prescriptions and proposes a limit on the maximum out-of-pocket payments by seniors.

Another provision would force hospital-owned doctors' offices to be paid at the physician-office rate if they are located off campus. The government would save $34 billion over a decade.

The proposal also would make changes to Medicaid, the health program for lower-income Americans that is funded by the federal government and states. It would create a “market-based health-care grant” that could fund programs in addition to the traditional Medicaid program, a change that would lower Medicaid spending by about $250 billion over 10 years.

One program that would face the biggest reduction is the Supplemental Nutrition Assistance Program, which is a version of food stamps run by the Agriculture Department. The White House proposes cutting $214 billion from the program over 10 years, although Congress often fights about changing SNAP and rarely has enacted changes.

It would cut an additional $1.5 trillion over 10 years by reorganizing the government and instituting a plan that would cut a number of programs by 2 percent each year, something that probably would not pass Congress because lawmakers agreed to increase spending across the board last week.

Other parts of the White House’s budget are less defined. For example, it proposes to save $139 billion over 10 years by reducing “improper payments government wide.”

Last year, Trump and his budget director, Mick Mulvaney, sought to use the budget as a way to promise that the deficit would be eliminated over 10 years, even though many of its proposals were not enacted.

But this year’s proposal comes just days after Congress agreed to increase spending by $500 billion over 10 years, boosting a combination of military and domestic programs to secure votes from both parties.

That agreement, combined with the major revenue losses from the tax plan, made the deficit issues much more difficult for the White House to reconcile.

Trump’s budget assumes hotter growth in the coming years than Wall Street economists predict, which is significant because this dynamic helps the administration increase projected tax receipts. The proposal relies on growth hitting 3.1 percent this fiscal year and staying above 3 percent through 2024 — a sustained stretch that hasn’t occurred since the 1980s.

That’s an even loftier estimate than Trump’s budget last year, which was widely panned for using fantasy figures. The Congressional Budget Office has been assuming 1.9 percent growth for the next decade, since most experts anticipate there will be a recession at some point.

“It assumes much higher economic growth than nearly all outside forecasters,” said Maya MacGuineas, head of the Committee for a Responsible Federal Budget. “The budget counts on these and other assumptions to reduce deficits to sustainable levels – and without them, debt would continue to rise rapidly and indefinitely.”

Read more:

In big reversal, new Trump budget will give up on longtime Republican goal of eliminating deficit

Trump plan will drop GOP’s traditional goal of balancing budget within 10 years

Erica Werner, Heather Long, and Carolyn Y. Johnson contributed to this report.