Trump’s $4.8 Trillion Budget Would Increase Debt, Cut Safety Net

NEW YORK (Capital Markets in Africa) – President Donald Trump’s $4.8 trillion budget for the upcoming fiscal year proposes billions more in funding for defense and a U.S. mission to Mars but would bring steep cuts to social programs despite almost $1 trillion in deficit spending.

The proposal, scheduled to be unveiled on Monday, is an election-year embodiment of many of the policy priorities Trump has championed over his first three years in office. He proposes continuing his effort to “rebuild” the U.S. military by investing heavily in defense spending — $740.5 billion in the next fiscal year — including the creation of Space Force.

But the president also calls for deep cuts to government programs he believes are unpopular with his base, slashing discretionary spending by 5% — down to $590 billion — in the coming year. That includes major reductions in foreign aid and environmental protection programs, along with stringent new work requirements on welfare programs such as food stamps and housing assistance.

The annual budget produced by the White House reflects the policy aspirations of the incumbent administration but has no binding power since federal spending is appropriated by Congress. Lawmakers aren’t expected to finish work on 2021 spending levels until after the November election. And the White House move to change two-year budget cap levels negotiated with Democrats last summer could make an eventual spending deal more difficult.

Democrats quickly took aim at Trump’s proposed cuts. “The budget is a statement of values and once again the President is showing just how little he values the good health, financial security and well-being of hard-working American families,” House Speaker Nancy Pelosi said in a statement Monday.

Trump’s budget shows the president drifting further away from his campaign pledge to eliminate the U.S. national debt by the time he leaves office.

U.S. debt has already risen $3 trillion to the debt during Trump’s first three years in office, and his plan calls for adding to the debt until 2035. Most Republican presidents have released budgets they say would balance the budget within a decade, though this is the third consecutive plan released by the White House that fails to reach that goal. Only once a budget is in surplus can the underlying debt be paid down.

The deficit would decline to $966 billion next year, according to a senior administration official, who discussed the contents of the proposal on condition of anonymity. That’s below the $1 trillion projected by the nonpartisan Congressional Budget Office under current policies. Total debt held by the public is approaching $18 trillion and the CBO estimates it would reach $31 trillion by 2031 under current law.

“He now leaves it to future Presidents and Congresses to achieve fiscal sanity,” said Bill Hoagland, a former Senate budget aide now with the Bipartisan Policy Center.

‘Who the Hell Cares?’
Trump has shown little of the traditional GOP concern about deficit spending. He dismissed concerns voiced by some fiscal conservatives at a fundraiser in January in Florida.

“Who the hell cares about the budget?” Trump said in a recording of the closed-door remarks obtained by the Washington Post. “We’re going to have a country.”

Still, the president’s plan does anticipate significant savings through a series of cuts and changes to programs designed to assist the nation’s most vulnerable citizens.

Those include $135 billion in drug pricing reform, $292 billion from adding a work requirement to welfare programs, $170 billion from changing student loan laws, $70 billion from reforming disability programs, and $266 billion from “site neutrality” rules that would see the government pay the same amount for medical services whether they were performed in a hospital or at a doctor’s office.

‘Thoughtful Reforms’
“A lot of these are smart, thoughtful reforms. Many are bipartisan, and versions appeared in Obama budgets,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, a watchdog group. “A number of them would actually reduce costs or improve the situation for beneficiaries of the programs, as well as the budget.”

The proposals are already garnering criticism from Democrats, who said the president is looking to kick needy people off government assistance programs.

“These deep cuts send a clear message to the American people about the Trump administration’s warped values and misplaced priorities,” said Representative Nita Lowey of New York, chairwoman of the House Appropriations Committee. “I look forward to working with my colleagues to reject this proposal and instead invest in America’s working families.”

Perennial Targets
Each chapter of the budget released on Monday will include an outline of programs and projects the administration has deemed wasteful. And the proposal targets many of the same areas Trump has sought to cut in years past: foreign aid, the Environmental Protection Agency, and public broadcasting.

The Commerce Department will see one of the largest reductions, after a one-year surge to pay for this year’s decennial census. Trump has also zeroed-out funding for examining the creation of a permanent nuclear waste site at Nevada’s Yucca Mountain. Trump announced his plan to abandon the project in a tweet last week, in what was interpreted as a bid to court Nevada voters ahead of the 2020 election.

The administration isn’t proposing a special allocation of funds to combat the novel coronavirus, the official said. The virus has led to more than 800 deaths worldwide and sparked quarantines of travelers coming from China, where the outbreak started. Proposed funding for the Centers for Disease Control and Prevention will be cut 10%, but the budget leaves untouched the $4 billion allocated for its work on infectious diseases.

Some agencies get a boost under the president’s proposal, including NASA, which would see its spending rise 12% in the coming year. That additional funding would be targeted toward the president’s goal of returning to the Moon by 2024, with the aim of later attempting a lunar launch of a manned spacecraft bound for Mars.

Another of the president’s major priorities — the border wall with Mexico — would receive $2 billion in funding next year. That’s down from $8.6 billion requested a year ago, but the senior administration official said that with funding for 1,000 miles of the wall already secured, the administration needed less in the upcoming year.

And the budget again includes $1 trillion for infrastructure spending, modeled on combining legislation proposed by GOP Senator John Barrasso of Wyoming with a $200 billion fund for “nationally significant projects.” The remainder of the funding would be secured through public-private partnerships and state and local spending, the official said. The White House would replenish the depleted Highway Trust Fund through cost savings in other areas of the budget.

Rosy Projections
Trump’s budget also assumes that the economy will continue to get stronger. The outline projects the economy will grow 3.1% in the fourth quarter of 2020 compared with a year earlier, and then expand at a pace of 3% for the coming years, only cooling toward the end of the decade.

The estimates are far more optimistic than those of most economists, and the administration failed to hit its own projections this year, despite surging stock markets. A recent Bloomberg News survey of 71 analysts anticipated U.S. GDP growth at 1.8% in 2020 and 1.9% in 2021.

The senior administration official said the U.S. fell short of projections in 2019 because of Boeing Co.’s issues with the 737 MAX jet, the GM autoworkers strike, flooding in the Midwest, and investor uncertainty about trade deals with China, Mexico, and Canada.

The budget outline also forecasts the 10-year Treasury yield will average 2% in 2020 and grow more slowly than previously projected over the next decade, reducing the costs of interest payments. The administration official said the predictions were in line with outside analysts’.

The budget also assumes that lawmakers will extend the president’s tax cuts, which are set to expire in 2025, and that Trump will continue negotiating trade deals on better terms for the U.S. economy.

Long Odds
Presidential budget requests are typically treated as “dead on arrival” by Congress. But Trump’s willingness to circumvent Congress on budget matters — including holding up foreign aid and diverting military construction funds to build his wall — arguably make the blueprint more relevant.

Still, many of the president’s proposed changes face long odds on Capitol Hill, where Democrats control the House and are unlikely to accept his cuts to social welfare programs. They’re also likely to insist on adhering to an existing spending agreement that sets defense spending for the coming year at $741 billion and non-defense spending at $635 billion.

“Just six short months ago, the President signed a bipartisan two-year budget deal into law but now, the President is apparently going back on his word. Instead, he is proposing deep cuts to critical programs that help American families and protect our economic and national security,” said House Budget Committee Chairman John Yarmuth, a Kentucky Democrat. “Congress will stand firm against this President’s broken promises and his disregard for the human cost of his destructive policies.”

The fact that the White House proposal tears up the two-year budget caps deal inked by Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin last summer as part of a debt-ceiling deal could presage an ugly showdown after the November elections.

Congress isn’t expected to complete spending bills for fiscal 2021 which starts Oct. 1 until after the November election since Democrats have incentives to wait and see if they can unseat Trump. If Trump wins re-election, however, he’d have greater leverage to try to force House Democrats to accept his new proposed spending levels.

Source: Bloomberg Business News