February 28, 2017

Trump's Budget Nominee Will Face Daunting Math

In selecting Rep. Mick Mulvaney (R-S.C.) as his budget director, President-elect Donald Trump has chosen a strong advocate of balanced budgets accomplished through deep spending cuts. It will be Mulvaney’s difficult task to craft a budget that adheres to this goal while accommodating Trump’s many campaign promises to increase spending and cut taxes.  

As a co-founder and leader of the House Freedom Caucus Mulvaney has advocated deeper spending cuts than House Republican leaders have agreed to, even if that meant shutting down the government. In his quest to reduce spending he has not spared the Pentagon budget from scrutiny, particularly the gimmick of using the Overseas Contingencies Operations fund (OCO) to avoid spending caps.

He has also opposed raising the nation’s statutory debt limit without spending cuts and has downplayed the likelihood of a government default.

Some of these hard-line positions might prove difficult to maintain as budget director where his job will require negotiations with his former colleagues in Congress to push through the administration’s fiscal agenda. This will include decisions on Fiscal Year 2018 spending caps, replacement costs of repealing the Affordable Care Act, and an inevitable need to raise the statutory debt limit.

Mulvaney may also find tension within the Trump administration as it works through which campaign promises to promote and when. Prominent fiscal policy examples include major increases in defense spending and infrastructure, leaving alone large benefit programs such as Medicare and Social Security, and substantial tax cuts. Pushing any of them will require even deeper spending cuts elsewhere in the budget to bring deficits down.

The budgetary math is daunting. Under current law, before any of Trump’s proposals are factored in, the Congressional Budget Office (CBO) projects that deficits will rise from $520 billion to $954 billion during the next presidential term (FY 2018-2022). This assumes that annual appropriations (“discretionary spending”) will fall slightly as a share of the economy in line with current spending caps while revenues will remain relatively flat. The main cost drivers will be entitlement programs (primarily Social Security, Medicare and Medicaid) plus interest on the debt.

Prior to his nomination, Mulvaney set out an appropriate standard:

“You can’t just like spending that your party wants and dislike spending the other party wants,” he said in a November interview with The Wall Street Journal. On infrastructure, for example, he said any new spending shouldn’t add to deficits. “You’d like to think we could be consistent, and a Republican deficit is the same as a Democrat deficit,” he said.

In the coming months, he will now have an opportunity to put that standard to the test.