President Donald Trump just released his first annual budget. Like so many of Trump’s ideas, the new budget has a grandiose moniker — “A New Foundation For American Greatness.” I think “greatness” in a federal budget is at the very least oxymoronic, regardless of one’s political leanings.
Those on the left think the president’s budget will have a calamitous social impact, and that it is based on faulty and overly optimistic economic growth assumptions. Former Clinton Treasury Secretary Larry Summers wrote that the budget makes sense, “if you believe in tooth fairies and ludicrous supply-side economics.”
Those on the right have applauded the president’s budget, saying it’s rightly focused on mandatory spending reforms to Medicaid, welfare and disability programs. The Heritage Foundation says the Trump budget also, “follows the right approach on discretionary spending, by prioritizing national defense in a fiscally responsible way, with offsetting cuts to domestic programs that are redundant, improper, or otherwise wasteful.”
Interestingly, both of these observations could be accurate. The growth assumptions (3% economic growth per year) are definitely “optimistic,” to say the least. Yet prioritizing the national defense, the one legitimate Constitutional role of the federal government, also is a step in the right direction.
What I’m interested in, however, are the real shake-ups and surprises in Donald Trump’s budget. These are the eye-opening proposals/takeaways that have captured my attention, and that could have interesting implications for America.
Trump Budget Surprise: Innovative Budget Cuts
When it comes to innovative thinking on a budget, I must hand it to Trump’s budget director, Mick Mulvaney.
That’s because whether you agree with Mulvaney’s approach, many give him props for proposing various domestic cuts, such as ending the Community Development block grant, moving air traffic control to the private sector, cutting rural subsidies, slashing the EPA budget by nearly a third and cutting Amtrak subsidies.
Many of these, and other innovative cuts, have been recommended by the group Downsizing the Federal Government. So if you are tired of big-government encroachment, then this budget represents a good start.
Trump Budget Surprise: Increased Spending
For all the talk about domestic cuts, the big picture here is that the Trump budget actually increases spending. This was pointed out nicely by Nick Gillespie, Editor-in-Chief at Reason.com, where he wrote:
“When you look at the overall numbers, spending increases to $4.1 trillion in 2018 and rises to $5.7 trillion in 2027. So much for reductions. When figured as a percentage of the economy (GDP), we see a slow decline from 20.5 percent next year down to 18.4 percent in 2027, but those figures are screwy because they’re based on the phoney-baloney growth projections …”
When you get libertarians like Gillespie and mainstream Democrats like Larry Summers calling out the growth projections as fiction, there’s something there.
Trump Budget Surprise: It Eliminates 66 Programs
Say what you will about the growth assumptions, this budget doesn’t lack specifics when it comes to eliminating government programs. The Hill did a great job of outlining the 66 programs slated to be completely eliminated by the Trump administration’s budget.
Those programs include the Agriculture Department’s Single Family Housing Direct Loans,; the Commerce Department’s Economic Development Council, the Education Department’s 21st Century Community Learning Centers and the Justice Department’s State Criminal Alien Assistance Program.
According the president’s budget, the elimination of the 66 federal programs would save taxpayers $26.7 billion.
Trump Budget Surprise: Defense
A massive increase in defense spending was a strong pillar of candidate Trump’s message. Yet now that the president has unveiled his first budget, has he made good on the defense campaign rhetoric?
According to Reuters, “Trump is seeking a $52 billion hike for the Pentagon as part of an overall defense spending increase of $54 billion. That is almost 10 percent higher than current budget caps, but only 3 percent more than what former President Barack Obama had sought in his long-term budget plan.” The total proposed military budget is $603 billion.
The Trump campaign rhetoric about making the military great again, crushing Isis and rebuilding the Navy with historic increases in military spending just don’t translate into this budget. Perennial defense hawk, Sen. John McCain of Arizona, said of that the proposals on defense spending were “inadequate.” McCain wants to increase defense spending to above $640 billion.
Now, depending on your political views, this rather modest increase in defense spending is either a good thing or a bad thing. One thing not perspective dependent is that the increased military spending doesn’t live up to the campaign hype.
Trump Budget Surprise: Combating Addiction
The Trump budget cuts a lot of social services, but one program it increases funding for is opioid addiction. According to Politico:
“Trump proposes $500 million in additional funding to expand prevention efforts and increase access to treatment and recovery services. This is clearly a top priority for the Trump administration.”
Politico goes on to say that given the president’s electoral strength in the Midwest, which are the states suffering most from the opioid addiction epidemic, it makes sense that there would be more money proposed to fight this epidemic.
I think that’s a bit too cynical, but cynicism is a quality that’s been fostered in America since Trump’s election. As such, it’s not surprising Politico would view an attempt to combat addiction with a politically tarnished lens.
Trump Budget Surprise: A Budget Surplus
The Trump budget will, according to the administration, lead to a $16 billion surplus by 2027. Here again, Politico tells us,
“… during the 10-year budget window, the annual deficit would average 1.4 percent of GDP, less than half its 2016 level. And the U.S. debt-to-GDP ratio—a measure of the country’s ability to pay its debt—would fall from 77 percent in 2018 to under 60 percent in 2027, according to White House figures.”
So, the upfront math has been designed to get the country to not just a balanced budget, but to also have a budget surplus in a decade. The problem, of course, is that those figures assume the widely criticized assumptions about economic growth.
Politico goes a step further, saying, “… those figures are, at best, misleading and, at worst, a willful attempt to deceive Americans about the true fiscal implications of Trump’s agenda.”
There’s that cynicism again, in full regalia.
Trump Budget Surprise: Overhauls Medicaid
The Trump budget calls for a big overhaul of Medicaid, the federal-state health care program for the poor and disabled. The budget calls for cuts of more than 40% to the program over the next decade.
According to the Wall Street Journal, the budget takes its cue from the Medicaid changes originally proposed by House GOP leaders as part of their healthcare reform proposals. The House plan would end Medicaid expansion and limit how much the federal government would pay the states each year.
“That approach would significantly reduce the program’s cost over time, with the nonpartisan Congressional Budget Office estimating it could save about $840 billion, a quarter of the program’s total cost, over the next decade,” according to the WSJ.
Trump Budget Surprise: Fanciful Growth Projections
By far the biggest shake-up, in my view, is what Mick Mulvaney says he and the president won’t accept, and that is the rather anemic economic growth of under 2%, as projected by the Congressional Budget Office.
“That assumes a pessimism about America, about the economy, about its culture, that we’re simply refusing to accept,” said Mulvaney, who added, “We believe that we can get to [3%] growth and we don’t believe that’s fanciful.”
The administration argues that if we can get Obamacare repeal/replace enacted, along with the tax savings inherent in the plan, and if we can get the Trump tax reform proposals in place, then that will help economic growth rise to 3% by 2021, and remain there through the end of the 10-year budget period in 2027.
Considering the lack of progress on the Trump pro-growth agenda so far, it’s hard to see healthcare reform and tax reform turning out the way the administration plans it. That makes it almost impossible for the Trump budget’s “fanciful” growth assumptions to be realized.
Hey, I am all about economic growth, limited government and a restrained federal government. Yet I’m also all about reality, seemingly unlike many of the assumptions made by the Trump budget.
Jim Woods is the Editor of the Successful ETF Investing, and Stock Investor’s Blueprint newsletters. A small “l” libertarian and self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.