WASHINGTON, DC – MAY 19: Copies of President Trump’s FY’18 budget books are stacked, at the Government Publishing Office, on May 19, 2017 in Washington, DC. (Photo by Mark Wilson/Getty Images)
The Trump administration budget is to be unveiled on Tuesday, though advanced information was available Monday evening. There’s already been detailed coverage trickling out, but beyond the details are underlying budget assumptions. More than aggressive, they seem Utopian. When reality comes crashing in, the results will be ugly and the cuts being discussed now will likely become far deeper, hurting the poor and middle class even more than they already will.
Some baseline expectations are set out on the very first page of budget spreadsheets. I’ve augmented the material with a third set of percentage changes in year-over-year comparisons. Below is the result:
Trump budget assumptions
The single most disturbing thing I saw in this budget was not cuts to programs so much as assumptions of economic growth, expressed as increased gross domestic product. GDP is not the most optimum way of looking at the true nature of the economy. Growth requires more expenditure and doesn’t recognize productivity, nor the inherent value of innovation and efficiency, let alone human welfare or the value of government services. Yet, this is what we have to work with.
So let’s do exactly that — examine annual US GDP growth from 1961 through 2015. Data comes from the World Bank:
U.S. annual GDP growth
Something that stands out is that after 1979, GDP growth does top 4% periodically, with a top number of about 4.6%, but that is fairly rare. Now look again at the Trump administration assumptions of GDP growth. Except for 2024, GDP growth is assumed to be a minimum of 4.1% and as high as 9.2% in 2023, a number that even China with its questionable accounting and economic reporting doesn’t near.
The argument from the administration and GOP would be that lower corporate and individual taxes will stimulate investment and economic growth. But that is utterly unrealistic and unreasonable. Corporate taxes are already low, when you consider that US effective tax rates after all the credits and loopholes available are actually competitive with corporate rates in much of the developed world. As for the magic of making more money available to the wealthy, the U.S. has tried that again and again and again since 1980 and the money never trickles down. Median incomes remain stagnant, showing that only some portion of the top half of the economy sees all the gains. Also, in that same period, growth hits at most 4.6%.
Without GDP growth, receipts of the federal government can’t grow the way the administration assumes, as a result of increased economic growth. There’s already a planned significant increase in annual deficits, from $1.17 trillion in 2017 to $1.22 trillion in 2020. Those deficits will balloon with more realistic growth figures and tax incomes, unless the budget shrinks.
Many areas important to those in the middle and lower economic classes will take significant hits. Here are some of the proposed changes:
There would be no subsidized student loans from the federal government. These are probably the most important part of federal financial aid to students in need. Pell grants would be extended to year-round availability, using some of the money from the loan program cuts, but Pell grants only cover maybe a quarter of average college cost, with lower- and middle-income families facing unmet financial needs that are often insurmountable for them. The result is a much lower graduation rate than among higher-income families.
Starting in 2020, the budget shows an expected savings of $10 billion a year from Medicaid “reforms” that are more likely to be cuts under an expected repeal and replacement of the Affordable Care Act. In 2021, that amount is supposed to jump to $20 billion, then $40 billion in 2022, $60 billion in 2023, and $80 billion in 2024. By 2027, it hits $165 billion. Those aren’t economies of scale. They’re eliminations in a program that largely covers the poor.
The Consumer Finance Protection Bureau has already been under fire from the administration. A “reform” would pull $650 million a year from the budget starting in 2019 of what has become an important force in protecting consumers. Reductions scale to $826 million by 2027.
More “reformation,” this time in the SNAP/food stamps program would expect $4.64 billion in savings in 2018, expanding to cutting spending by $25.27 billion in 2027. Again, as with many federal programs, the overhead is far lower than many people realize. What would be cut is money for the program, as studies have shown there isn’t enough fraud in the system to get anywhere near this level of savings. Temporary Assistance for Needy Families (TANF) programs would have to reduce spending by at least $1.78 billion in 2018, growing to $2.24 billion in 2027.
Add this from Harry Stein, director of fiscal policy at the Center for American Progress. Trump promised no cuts to Social Security but the budget cuts Disability Insurance, which is Social Security for people who are disabled and unable to work. Apparently many media outlets are getting this wrong.
The combination of sharp cuts and wildly optimistic economic projections are likely to combine in some awful ways for those who are the most vulnerable in the country. And most everyone else will also feel the financial pressure. When things are difficult, playing Pollyanna is a terrible mistake.