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How the Trump Budget Could Bury the U.S. in Debt

Mar 17, 2017

President Trump's budget proposal presents itself as a model of prudent fiscal planning that won't add a dollar to future deficits.

In reality, the budget that actually emerges could make the already daunting trajectory for U.S.'s soaring debt far more perilous.

"I see just one way Trump will get close to the deficit-neutral outcome he wants," says Brian Riedl of the conservative Manhattan Institute. "He'd need play the 'madman' card, and threaten to shut down the government." Don't stop reading. The battle will be so intense that Trump might just do it.

The budget details

Released on March 15, "A Budget Blueprint to Make America Great Again" has been hyped like it's a complete recipe to building Trump's vision for the economy. In fact, it's a skeletal proposal that covers just 31% of the federal budget—discretionary spending that's voted on each year. It does not include plans for entitlements such as Social Security, Medicare, and Medicaid, nor does it unveil Trump's new policy on taxes.

The full spending and tax proposals will be united in the President's final budget proposal due in May, for the fiscal year beginning October 1.

Nor does the proposal contain all the spending that will appear in the final document. Most notably, missing from the "Blueprint" are the specifics on Trump's pledge to generate $1 trillion for restoring America's sagging infrastructure. Trump wants to spend just $168 billion in the next ten years in federal funds, and raise the balance from private investors, who would own the toll roads and water systems they build or revamp. Senate Minority Leader Chuck Schumer advocates federal outlays of a full $1 trillion. Whatever the final number, it will push discretionary spending far higher than the moderate numbers in the budget blueprint.

The Blueprint isn't what we'll get, but it's a good roadmap for what we can expect, so fasten your seatbelts. To handicap the outcome, let's examine four key takeaways from Trump's bold, even brazen, manifesto.

The claim: We're trading defense spending for deep cuts elsewhere.

Restraining the discretionary spending are caps enacted in the the 2011 Budget Control Act, also known as "sequestration." The BCA imposed separate annual limits on the two discretionary categories, defense and non-defense, chiefly government agencies and cabinet departments. The sequester has greatly slowed the growth of deficits and debt. Since 2011, non-defense discretionary outlays have increased just $20 billion or far less than 1% a year. But Trump assails the virtual freeze in defense outlays for hobbling our military, and wants to reverse that trend, in a big way.

Trump would lift the limit for defense outlays by $54 billion, and lower non-defense spending by precisely the same amount, so that on paper the deficit wouldn't change versus the budget "baseline" projected under existing law by the CBO. But as we'll see, what looks like a balanced approach could soon tilt towards newfound excess in the one area of the budget that's been strictly contained.

Trump's approach is radially different.

To hit the caps in non-defense spending, the Obama Administration took an across-the-board approach. It forced individual agencies, on a fairly uniform basis, to lower spending just enough to remain within the limits. The strategy ran along the lines of cutting10% from every program over several years, through freezing pay, laying off staff, and paring, but not killing, longstanding grants to the states. "Departments and programs got endlessly nickel and dimed," says Riedl. "There was no effort to eliminate programs that didn't work."

Trump is taking a radically different course. His plan is a primer in prioritizing federal spending. It advocates both shuttering a multitude of programs that Trump, and his advisers, deems not worth the cost, and sharply reducing overall outlays in most agencies and departments.

Trump will turn his campaign promises into budget numbers.

That's the claim of his budget director, former congressman and onetime ultra-deficit hawk Mick Mulvaney. By the way, Mulvaney is selling the plan by unfurling the kind of salty language favored by his boss. "You can't drain the swamp," Mulvaney reportedly declared in a press conference after releasing the Blueprint, "and leave all the people in it."

Indeed, the Blueprint puts dollars behind Trump's big priorities, and slashes funding for stuff he's denounced. In general, he's substantially raising outlays for border security, trade enforcement, deporting illegal aliens, enhancing veterans' benefits, and promoting school choice. He's pummeling green energy projects and research, global banks, community development, and federal health organizations.

Of the 17 agencies and departments that comprise the non-defense budget, Trump would lower spending in no fewer than 14. The biggest savings come from HHS ($15.1 billion), State ($10.1 billion), and Education ($9.0 billion). U.S. contributions to the United Nations would fall sharply, and grants to the World Bank and other multilateral development lenders would drop by $650 million in the next three years.

And that's not all. Outlays for renewable energy projects and global warming initiatives would shrink in both Energy and State, not to mention the epic one-third decline in EPA spending. Commuter rail carrier Amtrak would need to fund far more of its losses. And in what's bound to raise fierce opposition, Trump would pound the budget at the National Institutes of Health by 18% or $5.8 billion, on the grounds that NIH suffers from bloated administrative costs and focuses resources on less than fruitful research.

Trump deserves credit for targeting costly programs falsely advertised as helping the needy. For example, he's saving $3 billion by killing the Community Development Block Grant program under HUD, which is supposed to channel funds to poor communities. In reality, much of the money flows to wealthy suburbs for projects such as theatre renovations they probably wouldn't fund with their own tax dollars.

Trump's spending plans mirror his campaign promises as well. There's an extra $1.5 billion in there to support "detention" and "removal" of illegal aliens, and a line item of $2.6 billion "to plan, design and construct a physical wall."

What's the chance anything like this really happens?

Not very high.

Keep in mind that the sequester has already imposed draconian cuts on non-military spending, now poised to hit an all-time low as a share of GDP. It's virtually unthinkable that Trump will achieve anything like $54 billion in cuts to pay for his boost to defense. In fact, the looming danger is that new spending on everything else rises in tandem with the explosion in military outlays.

Here's why: In the past several years, every time the Republicans have pressed for increases in defense spending, the Democrats have demanded an equal batch of dollars for the rest of the discretionary budget. It's known as the "parity principle," and it's clinched a number of deals, including twin, $25 billion increases for both categories, agreed to for fiscal 2016.

"The Democrats are bound to demand $54 billion more on the non-defense side," says Riedl. Forget about cuts, he says. The most probable outcome is a large overall rise in discretionary spending, marking a sharp break from the past–– dangerous for a president who rails against excessive spending.

If "parity" reigns, and both sides of the discretionary budget rise $54 billion in fiscal 2017, total debt and deficits over the next decade will balloon by around $1.4 trillion, including interest expense on the extra debt. That would add almost 6% to the projected debt load of around $25 trillion that the CBO projects for 2026. That number would drive debt from a projected 89% of GDP to 94%, or even deeper into the disaster zone.

What about the madman theory?

Of course, this all assumes that Trump is willing to trade his defense buildup for a huge increase on the other side of the discretionary budget. He'll hate the idea, and he's not without leverage. Trump has the power to veto all appropriation bills that fund the government. "It's happened before under both Obama and Clinton," says Riedl. "Most voters despise a government shutdown, but Trump is different and unpredictable. He may not care about the polls." In addition, his base would probably cheer a shutdown.

It's not clear if the Democrats would compromise to prevent chaos (most shutdowns last just a week or two), or make no concessions. They may concluded that a shutdown would be political suicide for Trump. But Trump may be able to brand the Dems as wanton big spenders, and himself as the guardian of fiscal probity. It's not terribly reassuring when the only option for preventing a breakout in the one part of the budget that wasn't threatening may be the "madman" theory. Unlikely, yes, but one thing is certain: Trump isn't about to go predictable, and suspend his speciality—the mastery of suspense.

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