President Trump’s fiscal year 2018 budget is titled, “A New Foundation for American Greatness.” There are some good ideas, but more concrete details will need to be filled in to make this a solid basis for fixing the debt. Here’s a look at the pros and cons of the president’s $4.1 trillion budget. See a more detailed analysis of the budget here.
Aims to put the national debt on a downward path
The budget has the goal of reducing the national debt as a share of the economy, which is critical. Producing a budget that reverses the trend of debt growing faster than the economy is one of the 5 Ways Washington Can Make Good on Promises to Fix the Debt. Specifically, the budget aims to reduce debt held by the public from the current level of 77 percent of the economy to below 60 percent by 2027 and also eliminates the budget deficit. The current forecast has debt reaching 89 percent in ten years.
… but the numbers are not realistic.
Although the budget has a worthy goal, it is only reached by counting on economic growth far beyond any objective estimates, relying on many unspecified future spending cuts, and excluding the potential cost of tax reform. The budget assumes sustained economic growth of 3 percent over the next decade, which is highly unlikely given an aging population. In contrast, the nonpartisan Congressional Budget Office (CBO) predicts less than 2 percent growth. Slower labor force growth due to an aging workforce will be the primary factor constraining economic growth. Policymakers should make boosting growth a priority, but should not assume it as a starting point. If the growth assumptions in the budget are replaced by CBO’s forecast, the debt would hover at current levels instead of falling and the deficit would not be erased.
Proposes some concrete deficit reduction ideas
The budget offers some specific spending cuts and other savings, such as reforms to Medicaid, the Children’s Health Insurance Program, welfare, student loans, disability programs, federal employee retirement, and farm subsidies. The budget also finds savings from repealing and replacing “Obamacare” and curtailing improper payments. Many of these ideas are worthy of consideration as part of a comprehensive approach that places everything on the table and involves all parts of the budget.
… but focuses mostly on a small and declining share of the budget and does not address the biggest drivers of the debt.
While the budget does identify some specific savings, it relies heavily on unspecified spending cuts to non-defense discretionary spending, which is a small and dwindling part of the budget. Meanwhile, the biggest drivers of the long-term debt are left off the table, namely Medicare and Social Security retirement benefits. As Fix the Debt Co-Chairs Judd Gregg and Ed Rendell pointed out just ahead of the budget, Medicare and Social Security currently represent 39 percent of the federal budget and will account for 51 percent of the growth in government spending over the next decade. They also need reform to shore up their long-term finances. More attention must be paid to the autopilot spending that makes up much of the budget and will fuel most of the growth in overall spending.
Includes tax reform that does not add to the debt
The budget assumes tax reform that does not increase the debt, and actually may reduce the debt though its effect on economic growth. Comprehensive tax reform must be a critical part of any strategy to enhance economic growth and fix the debt. At the very least, tax reform should not add to the debt. Better yet, studies have shown that reform that reduces the debt is more beneficial to the economy in the longer run. Eliminating or reducing the nearly $1.6 trillion in tax breaks that are essentially spending through the tax code would make taxes simpler and fairer and promote economic growth.
… but is it a gimmick or a commitment?
Even though the budget claims that tax reform will not add to the debt, that seems to conflict with what the Trump Administration has proposed so far. The tax plan recently outlined by the White House could cost $5.5 trillion over a decade. On top of that, the budget claims that the additional revenue from tax reform growing the economy will go towards deficit reduction while the tax plan assumes that the additional revenue will help offset the cost of the tax cuts. They cannot have it both ways. New revenue from tax reform should contribute to bringing down the debt.
President Trump’s first budget offers some ideas worth developing further, but there are serious fractures that must be addressed. The next step is for Congress to agree on a budget blueprint. As lawmakers consider the proposal from President Trump, they should build on the positive aspects and fix the negative ones.