Trump Budget Lacks Credible Debt-Reduction Path

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WASHINGTON — The Concord Coalition expressed disappointment today in President Trump’s first budget proposal, saying it relies on improbable assertions of higher economic growth and unrealistic assumptions about future spending cuts to achieve its goal of balancing the budget in 10 years.

“The driving force of deficit reduction in this budget is the supposed super-charged economic growth effect of an unspecified tax cut,” said Concord Coalition Executive Director Robert L. Bixby. “That alone calls the credibility of the budget into question.”

The budget proposal purports to balance by 2027 and would reduce debt held by the public from 77 percent in 2017 to 60 percent by 2027. It achieves that balance by assuming $3.6 trillion of spending cuts, and more than $2 trillion of feedback from economic growth. The growth assumptions are dramatically higher than both the Congressional Budget Office (CBO) and private sector forecasts. They are not supported by demographic factors and labor force productivity trends upon which economic growth ultimately depend.

“While it is certainly possible to attain above-trend growth in any given year, it is not fiscally responsible to base a budget on the assumption that such growth can be maintained permanently,” Bixby said.  

The claimed budget improvement from economic growth is made all the more problematic by the overall lack of specifics on tax reform.There are no new tax reform details beyond the one-page summary that was released a month ago. Under any independent analysis of those details, tax reform would reduce revenue, yet this budget assumes reform would be revenue-neutral without accounting for economic growth effects and will produce a huge additional revenue windfall from economic growth.

The spending cuts in the budget come almost entirely from the domestic discretionary part of the budget and from the mandatory spending programs focused on low-income Americans. By proposing disproportionate cuts on a relatively small slice of the budget — a part of the budget already projected to shrink as a share of GDP — the proposed deficit reduction fails the test of broadly shared trade-offs and sacrifices.

The cuts to non-defense discretionary spending are simply unrealistic given recent history; the last three budget agreements have, on a bipartisan basis, increased spending on these programs relative to levels set in the Budget Control Act of 2011 (“sequester” caps). In this budget, such spending is cut by 42 percent in dollar terms in 2027 relative to the administration’s baseline. The spending levels shrink throughout the budget window even further below the already historically low levels under the current discretionary caps and sequester.

Even defense spending shrinks to close to half the historical average as a percent of GDP by 2027 (4.4 percent of GDP average vs. 2.3 percent of GDP), contradicting the administration’s own claims of the need to boost military spending.

On health care, the budget assumes enactment of the House-passed version of health care reform (the American Health Care Act). However, in addition to the AHCA’s $840 billion in cuts to Medicaid, the budget proposes $610 billion in further cuts to Medicaid. Ultimately, Medicaid would face a nearly 50 percent cut in the year 2027 relative to current law. The magnitude and rapidity of this reduction are unrealistic given the current debate over the AHCA in the Senate.

While growing health care costs, particularly in Medicare, are a far larger threat to long-term budget sustainability, the president’s proposal leaves Medicare untouched and offers no substantive reforms to reduce health care costs. It also repeals Medicare’s Independent Payment Advisory Board, setting back the cause of health care cost control.

The budget also proposes $72 billion in cuts to Social Security Disability Insurance while forgoing any changes to Social Security’s Old Age and Survivors Insurance program, which is both much larger and serves a wealthier population. This approach would neither fix Social Security’s long-term financial challenges nor protect the program for those beneficiaries who depend on it most.

A serious grappling with the long-term fiscal challenges is needed through a budget that brings down the debt and confronts the trade-offs required to do so. Unfortunately this budget does not do that.

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