On the campaign trail, candidate Donald Trump said he would eliminate the national debt “over a period of eight years.” But his first budget as president would increase the debt by more than $3 trillion—and that’s only through rosy assumptions about economic growth and double-counting of tax revenue.
Despite these budget gimmicks, the White House is touting the 62-page plan as a model of fiscal responsibility, criticizing the Obama administration’s spending and promising that the Trump administration “will restore fiscal discipline and make the hard decisions to put our country on a path to repay the debt in full,” according to a fact sheet accompanying the budget. Mick Mulvaney, the White House budget director, told reporters Tuesday that the blueprint was a “Taxpayer First” budget.
On paper, Mulvaney is right: under Trump’s plan, the government would have a $16 billion surplus by 2027; during the 10-year budget window, the annual deficit would average 1.4 percent of GDP, less than half its 2016 level. And the U.S. debt-to-GDP ratio—a measure of the country’s ability to pay its debt—would fall from 77 percent in 2018 to under 60 percent in 2027, according to White House figures.
But those figures are, at best, misleading and, at worst, a willful attempt to deceive Americans about the true fiscal implications of Trump’s agenda. The budget uses an optimistic assumption about economic growth, which few economists believe is realistic, and assumes the president’s tax plan is deficit-neutral, despite independent scores that the plan would reduce revenues by around $5 trillion. Worse, it double counts up to $2.1 trillion in revenue, a blatant accounting error. Corrected, the $5.6 trillion in savings could disappear entirely; in fact, Trump’s budget may even increase the debt.
On close reading, the budget is less a credible attempt to eliminate, or even pay down, the U.S. debt and more an ideological policy agenda disguised as a program of fiscal responsibility. It makes sharp cuts to domestic spending programs, including nearly $200 billion from food stamps and $72 billion from disability programs. But when it comes to the “hard decisions” that the White House professed to make in this budget, Trump chooses the easy route, refusing to consider any cuts for the two biggest drivers of the U.S.’s long-term debt: health care and retirement benefits for seniors.
“The decisions that they are calling hard would cut benefits for the Americans who deserve our support the most,” said Doug Elmendorf, the former head of the Congressional Budget Office. “That’s not making a difficult decision. That’s making a bad decision.”
To some extent, all politicians use rosy assumptions and budget gimmicks to promote their policy agendas, but the Trump White House goes beyond normal practices in its 2018 budget. The administration assumes that its policies, including tax reform, Obamacare repeal, and the rollback of Obama-era regulations, will jumpstart the economy, eventually pushing growth from its current 2 percent level to 3 percent by 2021. Almost no economists believe such an increase is possible because structural forces, including reduced productivity growth and the aging of baby boomers, are a drag on growth.
Trump’s most egregious budget gimmick occurs in the accounting of his tax reform plan. The White House includes the plan, which right now is just a one-page outline, in the budget but assumes the plan is revenue neutral. In the past, Treasury Secretary Steve Mnuchin has said that the tax plan will pay for itself through increased economic growth, a promise that economists have deemed unlikely. The Committee for a Responsible Federal Budget, a fiscal watchdog, estimates that the plan would actually cut revenues by $5.5 trillion, a figure that Mnuchin rejected at a congressional hearing last week. “We would never propose a plan that we thought would cost $5 trillion,” he said.
Mulvaney, in his briefing on Monday, said the administration assumed revenue neutrality in its budget “because it was, in all honesty, the most efficient way to look at it.” Otherwise, he said, the White House would have had to provide more details about the plan. In doing so, though, the White House is effectively admitting that its revenue baseline may be inaccurate, potentially by trillions of dollars.
The administration also makes an even more basic accounting error in its tax plan: it assumes that revenue generated through increased economic growth can both offset the cost of the tax plan and also reduce the deficit. In other words, the tax plan already uses any revenue generated through increased growth to offset cuts in the plan. But then the White House uses the same money, which totals up to $2.1 trillion, to reduce the deficit. This is as if a consumer decides to use a $100 salary bonus to pay a $100 cable bill and make a $100 car payment using the same money. In fact, of the $5.6 trillion in total savings, as much as 38 percent may come from this double-counting of revenue.
Mnuchin, at the Peterson Foundation’s Fiscal Summit Tuesday, did not reject the double-counting criticism but instead said, “This will be a preliminary document that will be refined.” An OMB spokesperson did not immediately respond to a request for comment.
For all these mathematical errors, the biggest flaw in the budget is conceptual: It doesn’t do much to address the true drivers of the U.S.’s long-term debt, which is caused by the growing costs of Medicaid, Medicare and Social Security. Trump does propose $600 billion in Medicaid cuts, in addition to the more than $800 billion in cuts in the Republican health care bill. But he doesn’t touch Medicare or Social Security retirement benefits. According to CBO, Social Security costs will grow from 4.9 percent of GDP today to 6.3 percent in 2047 while Medicare’s costs will rise 3.1 percent of GDP to 6.1 percent GDP. By 2047, CBO projects, those two programs alone will equal more than 40 percent of total spending.
Social Security and Medicare are called “entitlements” because Americans are entitled to those payments by law. So instead, Trump takes a sledgehammer to non-defense “discretionary” spending—basically the government funding for items like education, housing and veterans’ programs. In this category, the budget cuts everything from crop subsidies to student loans. Overall, non-defense discretionary spending would fall to 1.4 percent of GDP by 2027, lower than any point going back to at least 1967, the first year the Congressional Budget Office publishes data.
These drastic cuts to domestic spending programs would reduce overall government spending to 18.4 percent of GDP by 2027, down from 21 percent today. But they don’t do anything to make Medicare and Social Security sustainable. Leaving the two old-age entitlement programs untouched simply postpones the day of reckoning, using short-term cuts to push off long-term reforms. (Trump does propose reforms to Social Security Disability Insurance but SSDI makes up only a small percentage of Social Security.)
“A budget proposal that cordons off large parts of the budget for consideration and incorporates unduly optimistic assumptions about economic growth is not a responsible budget proposal,” said Elmendorf.
Politicians like to talk tough about reducing the debt and making “hard decisions” about the budget. But reducing the long-term debt is impossible without real reforms to Social Security and Medicare or large increases in federal revenue. This is the fundamental problem that few politicians of either party will level with voters, and for all his apparent truth-telling bluster, neither does Trump.
To the White House, the fact that the budget incorporates such steep spending cuts while leaving Social Security and Medicare untouched is a success in itself. “This plan will put our nation’s budget back into balance and begin to reduce the national debt through fiscally conservative principles that respect American taxpayers – all while preserving Social Security and Medicare,” the accompanying fact sheet reads. But from a different perspective, Trump is sacrificing basic government programs and support for the poor in an attempt to fulfill his twin campaign promises of reducing the debt and protecting Medicare and Social Security.
It’s a playbook that isn’t that different from House Speaker Paul Ryan, who became famous for the budgets he released as chair of the House Budget Committee. Like Trump, Ryan used rosy revenue assumptions and deep cuts to non-defense discretionary spending to balance the budget within 10 years. But Ryan differed in one big way: He actually proposed a major reform to Medicare. That reform, known as “premium support,” wouldn’t take effect for 10 years under the Ryan budget, grandfathering all Americans over the age of 55 into the current Medicare program. But premium support nevertheless represented a radical reform, one that was eventually accepted by his House GOP colleagues but has yet to garner enough support in the Senate.
While Trump has ruled out any such changes to entitlement programs, he has already flip-flopped on his past promise to reject cuts to Medicaid. It’s possible he will come to support premium support, or a different Medicare or Social Security reform, in the future. But so far, there are no signs that he is changing his mind. In the meantime, with promises to cut taxes, protect Medicare and Social Security and reduce the debt, he has nowhere else to cut but domestic programs.