Initial reactions to the president's budget

Last Monday, the president’s latest budget proposal was published and delivered to Congress. FY 2021 federal budget, 2/10/21.

BP-2021 was hardly a conservative budget. It showed a cumulative deficit of $5.6 trillion and a $6.7 trillion increase in gross federal debt over the projection period (FY 2021-2030). The report added that this budget would put the government on track to eliminate deficits by 2035, but given how things work inside the Beltway this didn’t mean a great deal.

Plenty of support exists for dire predictions about the consequences of permitting the federal government to keep spending more than Americans are paying in taxes and charging the excess on the national credit card. The main issue is timing, i.e., when will lenders conclude they’ve had enough and stop buying government debt at modest interest rates? See, e.g., Hormegeddon: How too much of a good thing leads to disaster, p. 257, Bill Bonner,

. . . public debt continues to increase. And the fact there are few visible bad consequences to America’s growing public debt is widely celebrated. *** Thanks to the willingness of people all over the world to take in dollar credits and hold them dear as if they were worth something, they are in fact worth something. And they will continue to be worth every penny as much . . until they aren’t anymore.

So what was really going on with this budget, and who was responsible?

A. Congress & mainstream media – Instead of the administration being criticized for submitting an irresponsible budget, the primary reaction was that the president and his supporters were proposing unacceptable budget cuts. Only diehard fiscal hawks were fretting about the dangers of big deficits and soaring debt.

Witness the ho-hum reaction a few days earlier after the Congressional Budget Office (CBO) issued a new long-term fiscal projection that had deteriorated from the same projection a year earlier. New projections of deficits provoke no response from Congress, Jay Heflin, Washington Examiner,

Lawmakers on Capitol Hill . . . appear more focused on deepening the situation by proposing ways to spend more and tax less. House Minority Leader Kevin McCarthy said on Monday that efforts are underway to produce another round of tax cuts following President Trump's comments in Davos recommending such legislation.

Democrats on the presidential campaign trail propose to expand entitlements, such as by implementing "Medicare for all" or by expanding Social Security. They vow to pay for the increase by raising taxes, but enacting new tax measures on that scale would be far beyond what has proved politically achievable in the past. If both parties get their way, the deficit would likely grow, not shrink.

Consider the questions Russell Vought, acting director of the president’s budget staff (Office of Management and Budget, or OMB), was asked at a
Feb. 10 press briefing. Why was this, that, or the other spending being reduced in BP-2021 – and was the change truly a “reform” or simply a “cut”? Also, were the members of Congress likely to go along?

Q. Realistically, [do] you think any of this will pass?

VOUGHT: Look, the first three budgets have not moved in our direction, but deficits continue to be very high. The debt, as a percentage of GDP, is something that is — hopefully there becomes a bipartisan consensus that we’re going to tackle.

We’re going to keep proposing these types of budgets and hope that, at some point, Congress will have some sense of fiscal sanity and join us in trying to tackle our debt and deficits.

On Capitol Hill, Sen. Mike Enzi (R-WY), who chairs the Senate Budget Committee, announced that no hearings would be conducted on BP-2021. While this document might be useful as a statement of the president’s priorities, it was up to Congress to set spending levels. GOP chairman says he won’t hold hearings on Trump budget: “It turns into a diatribe,” Jordain Carney,,

"I want to encourage people ... not to waste any time searching out the president's budget cuts. Nobody has listened to the president in the 23 years that I've been here. Congress doesn't pay attention to the president's budget exercise. I don't know why we put him through that," Enzi said during a floor speech.

The House Budget Committee scheduled a session with Mr. Vought, but the Democratic majority seemed more intent on delivering a message than listening to his testimony. Consider this excerpt from the opening statement of the HBC chair, Rep. John Yarmuth (D-KY),

Just six short months ago, the President signed a bipartisan two-year budget deal into law. It does everything the President’s proposal fails to do -- it set rational discretionary toplines allowing strong investments in our national and economic security; it had bipartisan support – including the Ranking Member and myself; and it set Congress up for a successful appropriations process. But now, the President is going back on his word. Instead, he is, once again, proposing deep cuts to critical programs that help American families and prepare our nation for the future. Once again, he is breaking his promises and lying to the American people. Etc. Etc.

The “deep cuts to critical programs” reference was based on a proposed order to reduce previously authorized nondefense discretionary spending levels in FY 2021 (starting 10/1/20) to comport with revised limits calculated by the OMB. FY 2021 budget, sequestration order,
2/10/20. The chance of such a request being accepted was so remote that one has to wonder why the proposal was made.

B. Executive branch – There is some encouraging rhetoric in BP-2021 about fiscal responsibility, including a claim that this and the president’s previous budgets had “proposed more spending reductions than any other administration in history.” Thus the budget was said to include $4.4 trillion in proposed savings. This figure was backed up by Table S-2 (which showed $4,626 billion in net deficit reductions over 10 years, heavily back-loaded, if all of the president’s budget proposals were implemented).

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To achieve the net projected savings (cutting the baseline deficit from $10.2T to $5.6T), it was proposed to (a) “invest in critical national priorities” - $0.6T over 10 years, including applicable debt service; and (b) “restrain spending to protect and respect American taxpayers,” net of debt service savings and other interest effects, to the tune of $5.2T.

#INVESTMENTS - While category (a) investments look relatively small - $585B over 10 years, a mere 11% of the projected savings in category (b) - there is a well-known tendency to lowball the cost of new programs in order to get them approved. Accordingly, the various elements should receive close scrutiny.

•Added defense funding of $166B to support the National Defense Strategy would be dwarfed by the projected reduction in Overseas Contingency Funding, see infra. Overall defense spending as a percentage of GDP is projected to decline from 3.2% currently to 2.2% in 2030, a trend that some may not view as consistent with national security needs.

•Major investment in infrastructure, reauthorize surface transportation programs, and establish a Federal Capital Revolving Fund - $274B. Details needed.

•Education Freedom scholarships - $45B. Details needed.

•Provide paid parental leave - $21B. This figure seems suspiciously low for several reasons, including the following:

First, it’s possible that much of the cost would reside at the state level (but still add to the overall tax burden on Americans), as might be inferred from the text on page 74 (see excerpt below). The track record of controlling the cost of joint federal-state entitlement programs, e.g., Medicaid, is mediocre.

The proposal would allow States to establish paid parental leave programs in a way that is most appropriate for their workforce and economy. The Federal Government is leading by example. At the end of 2019, the Administration secured paid parental leave for the Federal workforce. The Administration looks forward to continuing to work with the Congress to advance policies that would make paid parental leave a reality for families across the Nation.

Second, follow-on proposals to enhance the envisioned benefits could greatly drive up costs. See, e.g., CBO: Democratic paid leave bill would cost more than expected, leaving a deficit, Jay Heflin, Washington Examiner,

Democratic legislation (HR 1185) to provide universal paid family and medical leave has a projected cost to the federal government of $547B over the next 10 years, according to the Congressional Budget Office, which would be partially be paid for by a 0.4% increase in the payroll tax leaving a $228B deficit over 10 years.

•Debt service - $78B.

#SAVINGS - There are over a dozen line items in category (b), most of which appear to be based on statistical estimates vs. concrete plans. Also, it’s easy to imagine opposition to many of the proposals. Here are the major items (projected savings, 10-year totals):

•Right-size government & apply two-penny plan to non-defense discretionary spending - $1,550B;

•Reflect phasedown of Overseas Contingency Operations funding (future military operations cannot be reliably forecast, so at best this adjustment is a guess) - $567B

•Advance the president’s health[care] reform vision (basically a placeholder for an as yet undetermined replacement for GovCare) - $597B

•Address wasteful spending, fraud and abuse in healthcare (how’s that going to work without new top-down controls that would probably prove very unpopular?) - $509B

•Modernize Medicaid and the Children’s Health[care] insurance program [CHIP] - $193B

•Enact drug pricing reform - $135B

•Reform welfare programs - $292B

•Reform student loans - $170B

•All other - $748B

•Debt service savings, etc. - $450B

If by any chance the members of Congress weren’t disposed to accept the projected budget savings, it’s suggested that the members of Congress should be deemed accountable.

Unfortunately, the Congress continues to reject any efforts to restrain spending. Instead, they have greatly contributed to the continued ballooning of Federal debt and deficits, putting the Nation’s fiscal future at risk.

Hopefully, Congress would mend its ways, but if not then what? Well, the administration wouldn’t “simply sit by while the Congress continue[d] to spend,” but there is just so much it could do without congressional cooperation. A happy outcome would be unlikely.

Implementing the real spending restraint proposed in the 2021 Budget, coupled with other pro-growth policies, will keep the economy thriving and America prosperous for generations to come. America can choose a new path that the Administration offers with the Budget, or continue the path the Congress and Washington have followed, which will ensure future generations are saddled with less prosperity, less financial control over their lives, and less freedom.

C. The blame game - Given unmistakable signs that the members of Congress will ignore BP-2021, just as they have ignored previous budget proposals from the White House, one might conclude that the initial reaction was simply the prelude to arguments on the campaign trail about who should be blamed for deficits & debt. Professional budget wrestling, Wall Street Journal, 2/10/20.

The White House released its 2021 fiscal year budget proposal on Monday, and it’s amusing to hear those who have criticized the Trump Administration for trillion-dollar deficits now howl about its plans to slow spending growth. A bipartisan spending blowout is the reality in the Trump era, while the budget is a political document that probably wouldn’t happen even if the President wins a second term.

Is the president serious about reducing deficits, or simply giving lip service to the idea. Trump’s budget shows why we’re doomed, Philip Klein, Washington Examiner,

There’s little reason to believe that Trump will fight hard for any of the spending reductions he’s outlined in the latest budget document. In the past several years, he has proposed budgets vowing to make deep cuts to discretionary spending and to restore fiscal sanity, only to sign whatever Congress sends to him. The budgets he has allowed to become law have allowed spending to blow past the limits that were put in place as a result of Tea Party pressure during the Obama era, and there’s no reason to believe anything would work out differently this time.

Other observers credit the president with proposing a reasonably conservative budget. Maybe he’s not the real culprit in this situation, maybe we should be blaming conservatives who have effectively given up on budget discipline and aren’t really trying to support his efforts. Trump’s budget proposal show he’s willing to cut spending if conservatives would fight for it, Daniel Horowitz,,

If nothing else, this budget demonstrates that the more we keep digging into the red, the further to the left the baseline on spending moves and the harder it will be to dig out. Even this budget, which the media will decry as draconian and heartless to the children, elderly, sick, and puppies, envisions $4.8 trillion in spending this year, which is higher than Obama’s final budget for fiscal year 2017, even adjusted for inflation. The total spending over 10 years is projected at $56.3 trillion. Of the $4.6 trillion in projected deficit reductions under the bill, roughly $1.5 billion is achieved through new revenue projections based on GDP growth we have failed to achieve, precisely because of the growth of the deficit. Time is of the essence.

Congressional Republicans may be even more vulnerable if, as has been suggested, the American public is waking up to the importance of this issue. Why has the GOP stopped its complaints about the deficit? Ted Kaufman, News Journal,

“You can’t envy the political problems Congressional Republicans will face in 2020. After decades of talk [about] their party’s fiscal responsibility, they suddenly have to defend exactly the opposite. *** Recent polling data from Pew Research indicates this could be a major issue in this campaign year. *** I’m looking forward to how [the GOP will] explain what has happened when Republicans controlled both the White House and Congress.”

An examination of the recent Pew findings doesn’t bear out the suggestion, however, that the public is waking up to this issue. Also, Republicans would seem to have some pretty good counterarguments.

Actually, the Pew polling results paint a somewhat different picture. First, budget deficits are of greater concern to Republicans than to Democrats. Second, concern about budget deficits hit higher levels during the Obama administration than it is now. As economic concerns recede, environmental protection rises on the public’s policy agenda,, 2/13/20.

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Also, while the president’s fiscal track record is hardly exemplary, Sen. Kaufman omits an important aspect of the current situation, namely the manner in which congressional Democrats have fought the spending cuts reflected in the president’s budget proposals, e.g., BP-2021 (which was submitted to Congress last week). If the $4.6 trillion in net savings (over the next 10 years) in that budget were reflected in the CBO projections cited in Kaufman’s column, the situation would not appear so dire.

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