A balanced budget? With $2,062,000,000,000 in mystery money.
White House officials are boasting that President Trump’s budget would balance federal finances in 10 years. Yet despite extreme reductions in spending on health care for the poor, food stamps, education, science and basic government programs, Trump’s staff could only balance the budget by citing vague savings and sources of revenue — in other words, with trillions in mystery money.
It is not just that Trump is counting on a rapid acceleration in growth that economists believe is unlikely, which the budget projects will yield $2.1 trillion in new revenue ($2,062,000,000,000, to be more exact). Besides that bonus from growth, the budget also assumes that Trump’s tax cuts — which he has said will be the largest in history — would not affect the government’s bottom line.
And even with optimistic assumptions about the tax code and the overall economy, the White House still needed to claim over $1 trillion in unidentified cuts to miscellaneous programs to balance the budget.
Presidents often include optimistic assumptions in their budgets, but not to this degree, said Marc Goldwein, policy director at the nonpartisan Committee for a Responsible Federal Budget. “I do think this is on a whole new level, based on what we’ve seen before,” he said.
“This is on the outer limits,” said Bill Hoagland, a veteran GOP congressional aide. “It is pushing the envelope.”
Let’s take a closer look at how the White House says it would balance the budget.
‘Twopenny plan’: $1.4 trillion
Trump has pledged not to reduce spending on Medicare or Social Security and to increase the budget for the Pentagon. Those categories account for over half of total federal outlays. Balancing the budget in 10 years implies sharp reductions in the rest of public spending.
In particular, Trump proposes reducing all nondefense, discretionary spending — a miscellaneous category that includes a variety of basic government services, including education, scientific research, highways, the State Department and the FBI — by about 2 percent annually.
That might not seem like much, but the reductions add up quickly, especially because inflation and population growth mean these programs’ costs typically increase each year. Over 10 years, Trump’s “twopenny plan” adds up to a 27 percent reduction across the board.
Hoagland, a senior vice president at the Bipartisan Policy Center, is troubled by the size of these cuts but also by the fact that Trump and his aides did not explain where the savings would come from in that broad category. On some nondefense, discretionary priorities — such as infrastructure and border security — Trump has said he will increase spending, so it is unclear how the president would achieve that annual goal of 2 percent reductions.
Economic feedback: $2.1 trillion
The budget also forecasts $2.1 trillion in additional money attributable to a more robust economy. If economic activity picks up, Americans will earn more, buy more, invest more — and they’ll pay more in taxes.
This forecast is based on the assumption in the budget that Trump’s policies will accelerate the pace of economic growth to about 3 percent a year, which many economists view as optimistic relative to independent projections.
President Barack Obama’s most optimistic budget, Goldwein said, forecast economic growth at about 0.3 percentage points above the projection by the Congressional Budget Office. Trump’s first budget puts growth a full percentage point above that forecast.
“The growth numbers in this budget are laughable,” said Jason Furman, who served as chairman of the Council of Economic Advisers under Obama. “It’s flabbergasting.”
The administration hopes to achieve that goal in part through deregulating industry and imposing stricter requirements on recipients of public assistance to force them to find work.
Even conservative experts suggested that some of Trump’s policies might work against that goal. Hoagland pointed out that extreme reductions in funding for science and education would restrain economic growth over the long term. Technological progress and more skilled labor are crucial for improving standards of living, he said.
Others pointed out that Trump’s budget reduces spending on the Earned Income Tax Credit and similar programs, which Rep. Paul D. Ryan (R-Wis.), the speaker of the House, and other conservative policymakers have argued are valuable for encouraging Americans who are not working to look for a job. At the same time, economists in both parties argue that Trump’s opposition toward immigration and free trade could slow economic activity as well.
What is more, this $2.1 trillion apparently does not include any gains from changes to the tax system, which economists say could be one of the more effective ways for the administration to improve the economy.
Tax restructuring: Unknown
Tax relief was a key aspect of Trump’s campaign — but details on tax restructuring are omitted from the budget. Instead, the administration assumes no change in taxes.
Mick Mulvaney, Trump’s budget director, said that the White House was planning on tax reform but that because those plans are preliminary, the administration did not assume any overall change in the money collected.
“We don’t want to make too many assumptions,” Mulvaney said. “We thought the assumption that the tax reform would be deficit-neutral was the most reasonable.”
It is difficult to know what to make of this statement, because the budget in fact does project a change in the deficit resulting from revenue — an increase of $2.1 trillion over 10 years. Presumably, Mulvaney means that bonus from economic growth is not a result of changes to the tax system but would be a result of the administration’s other policies.
In other words, the administration is assuming a bonus beyond that $2.1 trillion from its tax policy that will cancel out reduced rates. The size of that additional assumption is unknown.
President Trump’s 2018 budget assumes a projected revenue increase of $2.1 trillion over 10 years. Analysts say it’s not clear how the administration’s plan will balance the budget.