Presidential Budgets: When A Cut isn’t a Cut
By: Mike Maharrey
Remember when a budget cut was actually a cut in spending rather than a cut in the expected increase in spending?
President Trump’s proposed budget calls for $4.7 trillion in spending in 2020. That would be a 5 percent increase over projected 2019 outlays. Although the budget supposedly “slashes” spending on some domestic programs it ramps up defense spending by 4 percent to $750 billion, according to reporting by the Washington Post.
The proposal includes $8.6 billion new spending for a border wall, some $200 billion earmarked for as yet to be defined “infrastructure spending,” and a $3.7 billion increase in the Department of Homeland Security’s budget.
The Trump budget would have to dump $165 billion into a war account called the Overseas Contingency Operations (OCO) in order to boost the Pentagon budget while remaining under congressional spending caps.
When Trump revealed his budget, Democrats and many mainstream political publications went ballistic over “cuts” to domestic programs that would total about 5 percent overall. Some of the agencies that would supposedly feel the slash of the budget ax include the EPA (31 percent cut), the Department of Energy (11 percent cut), the Department of Transportation (22 percent cut) and the Department of Health and Human Services (12 percent cut).
The proposed budget would also “slash” social safety net programs. It would reduce Medicare by about $845 billion over 10 years and Medicaid by $241 billion over 10 years, according to reporting by the Washington Post.
But here’s where things get tricky. In Washington D.C. parlance, a cut really isn’t a cut. It’s actually a reduction in the projected increase. An agency can actually spend more money year-over-year and pundits call it a cut if it was lower than the previous budget estimate.
For example, let’s say under the current budget the Department of ABC was slated to spend $1 billion more next year than this year. In the new budget, the department only gets to spend $800 million more than it did last year. This increase the department’s actual budget would count as 20 percent cut even though the agency will actually spend more money year-over-year.
So, as Politifact explained, the proposed “cuts” to Social Security, Medicare and Medicaid come with a “standard caveat.”
“They refer to future spending compared to the amount that would be spent under current law. So a budget can call for more dollars year after year, but if that’s less than what population growth and inflation and other factors would predict, both the White House and lawmakers refer to that as either savings or cuts (depending on which side of the debate they are on).”
This is how you end up with billions of dollars in spending cuts that add up to trillion dollar deficits.
Presidential budgets mean little in practice. Congress ultimately passed budgets and sets spending levels, and it rarely follows through on presidential budget cuts. We certainly didn’t see any significant reductions in spending when the GOP controlled both houses of Congress and the White House. But the presidential budget does open a window that allows us to peek in on the administration’s priorities. And Trump’s budget reveals that addressing out of control spending and the rapidly upward-spiraling national debt is not a priority.
As Reason reported, the proposed Trump budget would practically guarantee $1 trillion annual deficits until 2030.
The budget appears to balance in 15 years, according to a summary by ZeroHedge. But this assumes 3 percent economic growth over that time span. The U.S. economy didn’t even hit 3 percent growth in 2018 – a year in which the economy was supposedly booming. On top of that, debt retards economic growth. Studies have shown that GDP growth decreases by an average of about 30 percent when government debt exceeds 90 percent of an economy. By some estimates, U.S. debt already stands at around 105% of GDP. Ever since the U.S. national debt exceeded 90 percent of GDP in 2010, inflation-adjusted average GDP growth has been 33 percent below the average from 1960–2009, a period that included eight recessions.
In other words, we can expect the increasing debt to put a continually increasing drag on growth. In fact, the CBO estimates 1.8 percent annual growth over the next decade – and this assumes no recession.
When you boil it all down, Trump the best we can say is that the Trump budget would slow spending growth in some areas, but it wouldn’t actually cut spending anywhere. It means more trillion dollar deficits and skyrocketing debt.
Even with over-optimistic economic growth projections, President Trump’s proposed budget would require trillion-dollar budget deficits through 2022.
Like Donald Trump, Thomas Jefferson faced a huge national debt when he took office in 1800. But unlike his modern counterparts, Jefferson didn’t grow the debt further. In fact, he significantly whittled down the debt. Jefferson and his fellow Democrat-Republicans in Congress knocked about $26 million ($420.8 million in 2018 dollars) off the debt through his two terms in office — this despite taking on an additional $13 million of added debt for the Louisiana Purchase.
How did they do it?
Well, it was pretty simple. They cut spending – both domestic and military – and applied the savings to pay down debt.
Trump seems to be taking the exact opposite approach.