A bal­anced bud­get? With $2,062,000,000,000 in mys­tery money.

The Washington Post Sunday - - BUSINESS - BY MAX EHRENFREUND max.ehrenfreund@wash­post.com Ana Swan­son con­trib­uted to this re­port.

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.

MELINA MARA/THE WASH­ING­TON POST

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.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.