Pound foolish–but not penny wise

The Trump Administration released its $4 trillion budget on 23 May. Like the president himself, the budget promises a lot, delivers very little, and is full of misinformation.

The administration promises to eliminate the federal government’s budget deficit within 10 years, while at the same time offering tax cuts to the wealthiest Americans. To get a sense of the scale of this task, consider the current fiscal position of the US government. In 2016, the federal government had expenditures of about $3.85 trillion and took in revenues of about $3.27 trillion, resulting in a budget deficit of just under $600 billion.

Eliminating this deficit by belt-tightening is not nearly as simple as slashing spending by $600 billion, or by about 15% across the board, because some elements of the budget cannot be so easily cut. For example, interest on the federal government debt (which was at $241 billion in 2016) must be paid, despite Trump’s suggestion that it was open to negotiation. Failure to do so would lead to a major financial crisis. We should also assume that the government would not renege on its obligation to pay military and civilian pensions ($164 billion). This leaves two sources for cuts, “mandatory outlays,” spending that is already authorized under current law, and “discretionary outlays,” which includes everything else.

Mandatory outlays include Social Security ($910 billion in 2016), Medicare, Medicaid, and other health care programs ($1.1 trillion), earned income and child care tax credits, unemployment compensation, and other income security programs ($304 billion). Taken together, these payments constitute more than two thirds of the federal government’s budget. Trump pledged not to cut Social Security in 2015, but the current plan does just that by cutting Social Security Disability Insurance by 2%. Other proposed cuts include those to the Supplemental Nutrition Assistance Program (SNAP, or food stamps, cut by 29%), Children’s Health Insurance Program (19%), Medicaid (17%), Temporary Assistance for Needy Families (13%), and Unemployment Insurance (12%). These cuts will fall disproportionately on poorer Americans.

The remainder of the budget consists of discretionary spending, and is roughly evenly split between the military and all non-military functions of the federal government, including everything from courts and the FBI, to meat inspectors and US embassies abroad. Given the dangerous state of the world, defense spending is unlikely to be cut—in fact, the budget proposes a substantial increase in military spending. Hence, the weight of the Administration’s budget-cutting plans falls primarily on non-defense discretionary spending.

The largest percentage hits to discretionary spending are the State Department (33%) and the Environmental Protection Agency (31%), followed by the Departments of Agriculture (21%), Labor (21%), Health and Human Services (18%), Commerce (16%), Education (14%), and Housing and Urban Development (13%). Many of these cuts are counterproductive.

As a former State Department employee, I can certainly attest that not all moneys directed to the State Department were well spent back in my day. I wasted a great deal of time making sure that the graphs for the assistant secretary were made with the correct color palate, and no doubt photocopied a bit too much and used too many staples. Nonetheless, State provides valuable eyes and ears around the world. And, according to 120 retired generals and admirals, spending on foreign aid now can help prevent the need for military intervention later.

Cutting the EPA is another example of short-sighted budgetary policy. Denying that climate change and air, water, and land pollution will have serious effects on our health as well as the health of our children and grandchildren is criminally negligent. Don’t believe me? Read the assessment of Christine Todd Whitman, the EPA administrator for the noted tree-hugger George W. Bush.

Finally, it is worth noting the lie at the center of the Trump Administration’s budget.

All budgets must make assumptions about future economic performance. When the economy grows rapidly, the government typically spends less on unemployment compensation and other social programs and collects more taxes, making the deficit look smaller; when the economy stumbles, the opposite occurs. Since budgets anticipate tax and spending patterns ten years into the future, assumptions about economic growth can have a large impact on government spending plans. All presidents try to take a somewhat optimistic view of future economic growth, since a growing economy has more money to spend on a president’s pet projects and reduced pressure to curtail spending.

The current US budget assumes economic growth of 3% per year, which is about as far away from the less than 2% consensus among economic professionals as the president’s claims of inauguration attendance were from objective reports from the National Park service.

If enacted, the Trump budget would reduce services to the poor and middle class—many of whom voted for him—and cut taxes for the wealthy. It will hamper out long-term growth prospects and it certainly won’t lead to a balanced budget.

Trump’s budget is not penny wise and pound foolish. It’s just plain foolish.

Featured image credit: money change finance monedas by titidianita. Public domain via Pixabay.