Yesterday, the Trump Administration released its official Fiscal Year 2018 Budget Proposal. The budget document contains a lot of content, including individual agency and program budgets, major savings and reform proposals, and proposed annual spending, revenue, and deficit levels for the next 10 years. The Administration makes a serious and thorough effort to propose major savings reforms and aspires to balance the budget in 10 years. But, it utilizes unrealistic assumptions to achieve the balanced budget and avoids addressing the main drivers of our debt – Social Security and Medicare.
The United States is $20 trillion in debt. The President’s Budget recognizes the danger of this and proposes a bold list of reforms and program eliminations to address it. While many members of Congress and the benefactors of the programs that are impacted are already up in arms about the proposal, the budget reflects the fact that the United States does not have unlimited resources and tries to separate wants from needs.
For FY 2018, the budget plan proposes savings totaling $57.3 billion in discretionary spending, which includes $26.7 billion in program eliminations and $30.6 billion in spending reductions.
In addition,the budget takes dead aim at inefficient government programs, improper payments, and duplication. For example, programs that are ineffective or that are duplicated by other agencies, have been eliminated in the President’s Budget.
Some of those programs include:
Reduce funding for the Essential Air Service Program: Reduces funding by $175 million per year for a program that was created in the 1970s as a temporary program but continues to subsidize some near-empty flights at a rate that can go over $500 per passenger.
Eliminates the McGovern-Dole International Food for Education: A $200 million per year program that is duplicative of the US Agency for International Development and lacks of evidence of effective implementation.
Eliminates the Economic Development Administration: A $251 million per year program that contributes to the massive overlap among 80 federal economic development programs.
Reduces Gaining Early Awareness for Undergraduate Programs (GEAR UP): The budget reduces the program by one-third ($103 million) because it is duplicative of other Department of Education programs and shows limited evidence of increasing access to college.
Eliminates National Heritage Areas: A $20 million per year program that provides funds to Congressionally earmarked areas and has been perennially targeted for reduction or elimination by the National Park Service because it is secondary to their mission.
The President’s budget also aims to make improper payments a priority by proposing “to curtail Government-wide improper payments by half through actions to improve payment accuracy and tighten administrative controls.”
The budget hopes to eliminate $8.8 billion in improper payments throughout the years 2018-2022, and over a ten-year period aims to have that number up to almost $140 billion. For context, the federal government paid out $144 billion in improper payments in 2016 alone.
As our inauguration series and other news articles have noted time and time again, improper payments are an easy, non-partisan issue that affects almost every agency and program. It is heartening to see eliminating these payments is a priority.
The Budget proposal lays out what is at stake in stark terms:
“Unless we change our fiscal course, our….publicly held debt will continue to mushroom and soon place the Nation in uncharted fiscal territory, unable to weather unexpected events such as recession or war, and vulnerable to fiscal and economic crises.”
In response, the Administration proposes a budget that will balance in 10 years by reducing the deficit by $5.6 trillion. However, only $3.6 trillion of that comes from actual policy proposals. The other $2 trillion comes from assuming the enactment of fiscal, tax, and regulatory reforms will provide for sustained 3 percent economic growth. Some commentershave already pointed out that the administration is fudging the numbers by counting additional revenues based on growth projections towards both deficit reduction and to pay for tax cuts.
Apparent gimmicks aside, sustained 3 percent economic growth is an ambitious projection that is more than 50 percent higher than most currently forecasted growth rates.
A recent analysis by the Committee for a Responsible Federal Budget (CRFB) finds that hitting “three percent sustained economic growth, while a worthy aspirational goal, is also an incredibly challenging one.” This is because the massive headwinds that the demographics of the Baby Boomer retirement wave present to our economic growth potential. In order to achieve faster growth, productivity growth must make up for the impact of an aging population. But, the kind of productivity growth that would be needed to reach 3 percent sustained growth has not occurred since before1949. The CRFB analysis concludes “no one should assume this growth in their projections about our nation’s economic future.”
There is nothing wrong with having a goal of 3 percent growth rates, and it is certainly something to strive for. But it should not be relied upon to achieve over one-third of the proposed deficit reduction.
A supplemental document to the President’s Budget includes a simple but telling line about the inadequacy of the proposal to address all of our nation’s fiscal problems: “Despite all the progress the Budget proposals make towards fiscal goals, some long-term challenges remain, particularly in Social Security and Medicare.”
Buried on page 261 of the Analytical Perspectives appendix is also a clear warning about the federal government’s two largest budget items. It states, “Social Security and Medicare face particular challenges due to the decline in the ratio of active workers paying payroll taxes relative to retired workers receiving Social Security and Medicare benefits. In the longer run, absent changes in the laws governing these programs, the funds will become unable to meet their obligations in full.”
As Restore Accountability has addressed before, the federal government cannot address our long-term budget issues without addressing Medicare and Social Security. Regardless of campaign promises, popularity or political might, basic math dictates that Social Security and Medicare will change. The only question is whether Congress will act in time so there can be orderly reforms that protect those currently or close to retirement, along with preserving them for future generations. Conversely, if nothing is done, our elected officials will have to let them go bottom-up and stick our children and grandchildren with the costs without the benefits.
The President’s Budget is the first stage of the federal budgeting process where the Administration sets its priorities. Ultimately, it is Congress that will decide the funding levels and which policy proposals to enact. Congress should follow this budget’s lead by acknowledging the dire condition of our nation’s finances and take bold action that will get our nation’s finances back to balance. However, Congress should do so using realistic expectations and leave nothing off the table.