Allow me to share with you a very important bit of context to consider in light of President Trump’s speech to the joint session of Congress tonight. He’s expected to talk about his first budget, and the White House has been releasing talking points about the president’s priorities, which include:
* Making “the American Dream possible for all of our people”
* “Tax and regulatory reform to get relief to hard-working Americans and American businesses”
* “Making sure every child in America has access to a good education”
* “Making the workplace better for working parents”
* Partnering “with lawmakers to fix our problems and build on this renewed American spirit”
Hard to be against any of that, right? But there’s a fundamental problem that looms over this whole endeavor. His budget numbers come nowhere close to adding up. I don’t mean there’s some discrepancy at the margins, nor am I being the Washington budget scold who bugs you for not paying for your proposals. I’m saying that his budget won’t work.
The problem is that he can’t cut taxes by trillions, increase defense spending, invest in infrastructure, hold Social Security and Medicare harmless, and balance the budget in 10 years without almost getting rid of the rest of the government. And that’s not going to happen.
The figure below tells the story. The Trump administration and the president himself have been arguing that they’ll pay for their agenda through growth and spending cuts. As the president put it Monday morning, the revenue losses and new spending would be “offset and paid for by finding greater savings and efficiencies across” the federal government.
The figure shows actual non-interest spending by the federal government as a share of GDP from the late 1970s until now (green line; interest payments are left out because they must be made to avoid default). Then, the blue line shows the baseline given current laws and obligations. The key line is the red one, which shows how much spending would have to fall throughout the rest of the government if the Trump administration tried to meet the goals it has set out for itself. After a decade, that amounts to a 93 percent cut below the baseline, or the difference between 7.8 percent of GDP and 0.5 percent. As you see, we’ve never come anywhere close to that share because it’s completely divorced from reality.
America under that red line would look a lot different, and a lot worse, than it looks today. There would be almost no health care or nutritional support for the poor (Medicaid, the Supplemental Nutrition Assistance Program). Massive cuts would have to be made to veterans’ health care, child care, education, college assistance, Head Start, job training, national parks, medical research, legal services, Border Patrol, the FBI, courts, homeland security, housing, transportation — almost all of these programs would have to go.
To be clear, team Trump would not accept that red line. For one, they may — and this would be realistic and honest of them — admit that they had no interest in balancing the budget in 10 years. In fact, although the president asserted this goal in the campaign, and his fellow Republicans do so all the time, he says less about it these days — and that’s a good thing. Balancing the budget sounds virtuous, but it is not optimal fiscal policy (for the record, neither is ignoring unsustainable debts). Still, although I’m not at all averse to deficit spending, it should be undertaken on behalf of helping the left-behind, not cutting taxes for millionaires and gutting spending on the poor!
A much less honest response would be that they’re not going to have to cut the rest of government this much because their plan will deliver such a steep acceleration of growth rates. We’ll know once we see the assumptions in their budget proposal whether they include such wishful thinking on growth rates, like the 3 percent or even higher real GDP growth rates that Treasury Secretary Steven Mnuchin or Trump have cited. There’s no analytical precedent for such an assumption — history is very clear on the point that “tax cuts and deregulation” cannot be counted on to raise the underlying growth rate. So although it’s fine to aspire to higher growth, it’s not at all fine to use unrealistic growth assumptions to paint a rosy budget scenario.
Picture that red part of the line when you hear the president talking about how “we’re going to do more with less and make the government lean.” What he’s really saying is either “Actually, we’re going to live with much higher deficits,” or “We’re going to do more for the wealthy and a lot less for everyone else.” Or, in what I fear will be the end game here, a big serving of both.
Data note: This calculation, by Senate Budget Committee staffer Robert Kogan, first applies the Trump tax cuts (as estimated by Tax Policy Center) and the defense increases to the baseline deficits (the level of deficit spending is set back to pre-sequestration levels). Then the nominal deficit reduction path in the fiscal 2016 congressional budget plan is scaled up so that the budget would be balanced in 2027. That calculation produced the simulated amount of cuts to the nonprotected programs (and resulting interest savings), which were applied to non-interest, non-Social Security, non-Medicare, nondefense spending.