Trump Budget: Too Rosy?
Terry H. Schwadron
July 16, 2017
This week, the Congressional Budget Office reviewed the President’s proposed budget and came up with a bunch of bad assumptions and bad news for the economy that Donald Trump envisions in the next year.
Basically, the CBO found that:
· The proposed $4.1 trillion budget would not add to economic growth or eliminate the deficit over 10 years, as claimed by the proposal which actually had projected a surplus.
· The economy will continue to grow slowly, more like the current 1.9 percent annual rate rather than the projected 3–4% per year, as the budget had assumed.
· It is almost impossible to get an accurate sense of the effects of the proposed budget because the proposal was so skimpy. The CBO said without an understanding about proposed tax cuts, for example, beyond the current one-page outline, it was difficult to determine economic impact.
In other words, the CBO said there was little evidence for Mr. Trump’s optimism in doubling or tripling the pace of growth of the U.S. economy, a path to pay for his programs.
The CBO report got a lot less attention than it might because the health care debate, the Russian election meddling and European trips by the President have taken most of the Washington coverage. Still, it would seem that this is exactly the kind of policy heavy stuff that will have a great influence over the administration’s plans.
On top of this, the health care legislation is stuck at best, or headed for defeat at worst; the tax cut proposals show just as much division in the Congress as health care, and the administration’s plans for infrastructure investment seem like a bit of a pipe dream. All of the plans that the White House has announced depend on revving up the economy’s growth; by having a bigger economy, even lower taxes will float more money to the administration for investment in the tax cuts and new programs that the administration wants.
The CBO numbers are influential in analysis of the economic impact of proposals. Next week, the CBO is supposed to come up with impact estimates of the revised health care legislation.
Clearly the budget proposal is key to understanding how the government wants to go about its business. That the CBO sees the numbers as so erroneous in their assumptions should be troubling to Democrats and Republicans alike as they enter into discussions on big building-block programs like health care, taxes and infrastructure, to say nothing of vastly increasing the size of the U.S. military and cutting social spending, education, science, arts and other activity. It should also give pause for second thoughts about the current Trump administration effort to push more costs to state and local governments, which depend on the same basic economy estimates to guide their thinking.
So, the immediate fallout of the CBO report could be the politics of keeping the Republican Congress together. Basic to conservative thinking in Congress is rejection of all new taxes, and a serious effort to reduce the size of government. The Congress faces a need to lift the federal deficit cap because spending lines look to be outpacing revenue, meaning we will need to borrow more money before the end of this fiscal year in October. As The Washington Post reported, by rejecting the White House’s declaration that large-scale spending reductions and unspecified tax cuts will lead to economic growth, the CBO could make it harder for this coalition of GOP lawmakers to band together. Conservatives want yet deeper cuts to Medicare and Social Security, for example, a path that Democrats and more moderate Republicans oppose.
“The President’s proposals would affect the economy in a variety of ways,” the CBO wrote in its assessment. “However, because the details on many of the proposed policies are not available at this time, CBO cannot provide an analysis of all their macroeconomic effects or of the budgetary feedback that would result from those effects.”
Overall, the CBO said the White House’s plan would cut government spending by $4.2 trillion over 10 years compared with existing law.
The White House said, “This administration is committed to making the necessary investments to restore our military, secure our borders and modernize our infrastructure,” Office of Management and Budget spokeswoman Meghan Burris said. The White House attacked the CBO for its record of estimates.
The White House’s budget proposal was released in May, to set government spending levels for the year that begins Oct. 1. It essentially makes recommendations to Congress, which is responsible for drawing up the budget and appropriating funds to use. Congress often uses the White House’s budget proposal as a set of guidelines.
From the critic’s side, The New York Times quoted Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan advocacy organization, who said, “C.B.O.’s analysis shows the president’s claim of a balanced budget is built on a house of cards, reinforced by economic growth rates that are far outside of the mainstream consensus and would be unprecedented given today’s demographic realities.”
We can do better.