Last week, we got our first glimpse at the budget policies the Trump administration plans to pursue. We hope this brief explainer will provide some clarity on what we know now and what we can expect in the future. Stay tuned for further analysis as we receive more information on the President’s budget.
What it is: Preliminary guidance documents from the Office of Management and Budget (OMB) to federal agencies regarding President Trump’s budget priorities.
OMB is the entity in charge of developing and putting together the President’s annual budget. At the beginning of each annual budget formulation process, OMB provides agencies with their top-line numbers and guidance on the President’s priorities. OMB issued these for the first time on last Monday.
Now that the agencies have received this guidance, they have the chance to appeal these decisions and make their case to OMB and the President for alternative budget numbers and policies. This feedback will factor into the final product – the President’s Budget for fiscal year 2018. This initial guidance and feedback process typically begins a full year prior to the finalized budget product. It is occurring on an expedited schedule due to it being a presidential transition year.
What it is not: President Trump’s official annual budget submission.
The administration hopes to release further details later this month and publish its official budget submission to Congress by mid-May. For context, President Obama’s initial budget was released on May 7th. That means all of the information reported this week is still subject to change. For instance, just a day after initial reports of spending cuts, President Trump stated that the proposed increase in defense spending could be offset by economic growth assumptions instead.
What we know: President Trump wants to increase defense spending by $54 billion, a roughly 10 percent increase from the Department of Defense (DOD) base budget. He also wants to decrease spending in other discretionary programs by an equal amount.
Protecting the nation is a critical and fundamental role of the federal government. It is important to keep in mind, however, that defense spending is financed by the same taxes and debt as any other federal expenditure. Likewise, a dollar wasted at the DOD is just the same as a dollar wasted by the National Science Foundation when it comes to adding to the $20 trillion national debt that must be paid for by future generations. It is heartening to see that President Trump plans to offset increases in spending for the DOD with spending cuts elsewhere. But it is also important for the DOD to look within. In our Inauguration Series, we have outlined the need for more fiscal responsibility at the Department of Defense.
What we do not know: The comprehensive plans for the agencies’ budget numbers or specific program reductions or eliminations.
While we do not have a comprehensive proposal yet, press reports have released information on some of the individual agency budgets. For example, the initial guidance proposes a more than 30 percent funding reduction at the State Department and a 20 percent reduction at the Environmental Protection Agency (EPA).
Without further details, it is difficult to comment on the wisdom of these cuts. But it is important to keep in mind that during his eight years in office that President Bush nearly tripled the amount of spending at the State Department (from $8.3 billion in 2001 to $23.1 billion in 2008) and that President Obama doubled the amount of spending at EPA during his first year in office ($7.4 billion in 2008 to $14.8 billion in 2009). With a $20 trillion national debt, it is appropriate to see spending decisions of similar magnitude moving the other direction.
Contrary to the immediate protests from some politicians and pundits, there is plenty of room for strategic reforms, consolidations, and elimination within the discretionary budget that would save tens, if not, hundreds of billions of dollars. Here are just a few examples.
While elected officials will often tout the need for cutting spending in theory, when the time comes to make budgeting decisions, bipartisanship usually breaks out in favor of spending more of your tax dollars. The president’s budget is an important document that outlines the administration’s policy preferences – but the power of the purse ultimately resides in the legislative branch. Congress will have its own opportunity to propose and pass a budget. Regardless of significance, every program that the president’s budget proposes to reduce or eliminate has a constituency that is well represented by at least one lobbyist and member on Capitol Hill. Any proposed cuts will not happen without a fight.
What we do not expect: A budget that fixes our unsustainable long-term budget problems.
Even if the reported $54 billion in discretionary cuts were used for deficit reduction instead of increased defense spending, that would only make a 10 percent dent in this year’s projected $559 billion deficit. $54 billion is just a drop in the bucket compared to the serious fiscal challenges our country faces in the long-term.
The Congressional Budget Offices (CBO) projects that within 10 years, we will return to the same $1.4 trillion deficit levels that we faced during the height of the great recession. This unsustainable explosion in deficits is in large part due to the growth in entitlement spending and interest payments on the debt. But the Administration has reportedly committed to not touching entitlement programs in this year’s budget. The baby boomer generation is turning 65 once every 9 seconds. We will never get on top of our debt problem without addressing entitlement spending.
There is plenty of waste, fraud, and non-essential spending within the discretionary budget to achieve the level of spending cuts that have been initially proposed by President Trump. But for those that wish to maintain or even increase discretionary spending, including for defense, it is important to remember that President Trump’s budget proposal is not nearly as big of a threat to those programs as the out-of-control growth in our entitlement programs and national debt. By 2028, mandatory spending – predominately Medicare, Medicaid and social security payments – along with interest payments on our debt is expected to completely consume all federal revenues. At that point, our entire discretionary budget, including for our military, will be dependent on our ability to borrow – a risky proposition given our poor fiscal outlook.
The time for serious spending reforms was years ago. Continued inaction unjustifiably places the weight of our young’s economic future on the thinnest of ice.