President Donald Trump has released his budget proposal for 2021, and we have managed to come up with two, somewhat lukewarm cheers.
First cheer. The budget at least recognizes the government has a spending problem—a big one. “Unsustainable Federal spending is a serious threat to America’s prosperity. Gross Federal debt is now more than $23 trillion. It is imperative that the Congress take meaningful action to refocus Federal priorities and reign in spending.”
No argument from us.
Second Cheer. The budget proposes significant cuts in federal spending—along with a self-pat on the back. “Overall, this Budget includes $2.7 trillion in spending cuts—higher than any other administration in history.” The administration goes on to say, “the Budget meets the President’s directive to reduce nondefense programmatic spending by 5 percent below the higher 2019 cap level.”
Again, no argument from us.
Why the budget doesn’t get a third cheer. We agree with the rhetoric, but is it realistic?
Spending still grows—a lot: The headlines say federal spending will grow $4.83 trillion in 2021 under the Trump administration’s proposal—up $850 billion, or 21 percent, from when Trump took office, according to the Wall Street Journal.
But as the Cato Institute’s Chris Edwards points out, that figure is net of expected increases in tax revenue. The real spending increase—i.e., gross outlays—is $5.41 trillion.
Revenue may be over estimated: The budget also predicts the economy will grow by 2.8 percent this year and 3 percent thereafter—much faster than the Congressional Budget Office predicts.
However, the administration missed its 2018 and 2019 growth forecasts. Lower growth means less revenue and larger deficits.
We certainly think a 3 percent growth rate is possible, but it will likely depend on whether the president can conclude his trade wars, which have had a negative impact on U.S. manufacturing and business investment.
Some cuts may be questionable. Many of the proposed cuts are Houdini-esque—like increasing IRS funding by $15 billion over 10 years, which is supposed to bring in an extra $79 billion in tax revenue. Other cuts are in the “out years,” and experience has shown the out years never seem to arrive. And, finally, budget “cuts” are almost always Washington-speak for reductions in the rate of growth—not actual cuts.
Why the Democrats get a big boo. Predictably, Democrats received the budget with one big collective howl. Speaker Nancy Pelosi responded, “The cruel and shortsighted cuts in President Trump’s budget request are a roadmap to a sicker, weaker America. House Democrats will reject this toxic, destructive request which would hollow out our national strength and fail to meet the needs of the American People.”
In fact, entitlement spending under the Trump budget is projected to grow by 54 percent over the next decade.
While Trump’s budget doesn’t have much chance of passing in a Democratically controlled House, it does set a marker for the upcoming election. Every Democratic presidential candidate wants to blow the lid off government spending; Trump is proposing some modest reductions.
Taxpayers will get to decide which direction they like best.
February 11, 2020