Today, the Trump administration released a budget blueprint for fiscal year 2018 that would go a long way toward reducing the growth of some welfare programs, take a hatchet to harmful bureaucracies, and create at least a path to a balanced budget. If the president actually commits to fighting for his budget this time, it will reflect an important recognition that cutting discretionary spending alone is not enough to achieve solvency and that entitlement programs must be reined in. However, it is also a clear reminder that unless Obamacare is actually repealed and the free market is restored, health care will remain a budget albatross, slowing economic growth and reducing revenues.
The budget proposal would slash non-defense spending by roughly $1.5 trillion over a decade while increasing military spending by $500 billion. It would also shave $1.7 trillion off entitlement growth through 2027. Using roughly the same revenue baseline as the CBO (cutting taxes but assuming economic growth compensates for the short-term revenue loss), this budget would balance in 10 years.
Here are four important observations:
Actual cuts to the bureaucracies: This is the first budget proposal since the Reagan years that actually rolls back non-defense discretionary spending in a meaningful way. The EPA and foreign aid budgets will be cut by as much as one-third in just one year before beginning to rise slowly again. Wasteful programs within the Department of Agriculture and HHS are also high on the list of real cuts.
Media exaggerating entitlement cuts: While this is a good budget from a conservative perspective, especially as it relates to discretionary spending, it by no means cuts most welfare programs in actual terms that Americans perceive. It merely slows the rate of increase from the CBO baseline. The media is being extremely dishonest not to point out this distinction. Under existing CBO projections, we are slated to spend $52.5 trillion over the next 10 years. This proposal would “only” spend $48.9 trillion. Instead of spending $34 trillion on welfare and entitlements, Trump would propose $32 trillion in spending. Put another way, in FY 2018 we are projected to spend $4.1 trillion. In 2027, under the existing baseline, spending will rise to $6.5 trillion; under Trump’s proposal it will be $5.7 trillion. That is still an average of a four percent increase, much quicker than the economy could ever grow over the same period. Which further proves the point – that merely curtailing the rate of growth could bring a path to balance.
What about the much-vaunted cuts to Medicaid that the media decries as draconian? The CBO projects that under current law we will spend $5.2 trillion. Trump’s proposal would check in at $4.7 trillion. Remember that as late as the Bush years, spending on Medicaid was less than $200 billion a year (adjusted for inflation). It is already topping $400 billion. Those who decry cuts ignore the reality of where we came from and the fact that the program has done nothing to improve care, only further distorting the health care market. The cost per Medicaid patient has almost doubled from 2011 to 2015 – from $3,247 to $6,366 per individual. It is likely much higher this year. It’s nothing but a handout to hospitals and insurers promoted by their lobbyists.
Budget will not balance unless Obamacare is repealed: Budget crafters did a good job concocting a blueprint based on the reality that health care policy officials handed them. Unfortunately, that reality is a phony Obamacare repeal bill. As we’ve noted many times, given that the AHCA does not repeal the core regulations of Obamacare and therefore will not heal the private health care market, there is no way Republicans will ever actualize the reductions to Medicaid and the exchange subsidies. Those costs will balloon out of control and engender massive bailouts or single-payer.
Health care reform is the 800-pound gorilla in balancing the budget. Under the current baseline, federal spending on health care (not including state expenditures) is projected to be $16.5 trillion over the next 10 years, dwarfing the cost of Social Security by 25 percent. Also, the CBO has grossly underestimated the likely cost of the subsidies because it has not kept up with the rising premiums. Even if the House bill passes the Senate and is not made even more liberal (very unlikely), it is hard to imagine that this budget reality will change. The only way to reduce health care spending on the public side is to recreate a healthy private market. Given that this bill will not result in such a reality, it will be politically indefensible not to continue on the current trajectory of spending. The AHCA will create a permanent political cliff for bailouts.
In addition, if Obamacare is not repealed, then there is no way revenues will be anywhere near what the CBO or OMB projects. This budget proposals assumes an average of 3 percent economic growth over 10 years. Let’s put aside the question of whether this is realistic, given many other hurdles our economy faces. Let’s assume other policies from this administration will help grow the economy. Still, there is no way we will actualize this growth without repealing Obamacare. If the president likes the vision in this budget, he must demand full repeal of the Obamacare regulations.
Now we have a good blueprint. Will they fight for it? There’s nothing new about Republicans offering solid budget proposals. Paul Ryan has been doing this almost every year since he took over the House Budget Committee. The problem is they never had any intention of fighting for their vision when the budget deadline actually approached because they have an incorrigible fear of a government shutdown. We all hoped this culture of capitulation would change when Trump became president, but they betrayed us in speculator fashion on the FY 2017 budget. I praised the scaled-down budget plan for the remainder of this fiscal year when the OMB director released it. But then Republicans gave Democrats everything they wanted even though they control nothing. Democrats even increased spending on some of the programs targeted for cuts. So forgive me for being a bit skeptical. This could easily be another round of Lucy and the football, with conservatives cast as Charlie Brown.
If they actually intend to be different this September, they should demonstrate that they have slayed their demons of the government shutdown. Yet Treasury Secretary Steven Mnuchin is already saying he wants to raise the debt ceiling unconditionally without using that opportunity to enact some of these priorities. That same mentality, if left unchecked, will prevail with the September budget bill as well.
If the president is really serious about actually enacting this budget, he will do the following:
- Get his entire administration on board with the vision behind this budget. The only thing worse than the deep state undermining the agenda is to continue having a shallow state of his own appointees singing a different tune.
- Travel the country and deliver a series of policy speeches on welfare reform, the harm of the bureaucracies he plans to cut, and free market health care reform. Don’t fax it in and fall asleep until September.
- Demand from congressional leaders that they immediately craft the 12 annual appropriations bills based on most of the foundation from this budget blueprint (except for the porkulous and Ivankacare, which we can do without!).
- Lay down a marker up front that while he’s willing to negotiate and compromise on some details, the core elements that will lead to a balanced budget must be a part of the congressional budget or else he will veto those spending bills.
Over the past few weeks, this president has been beleaguered by a vicious media cycle of scandals. There’s no better way to change the narrative than by bringing the focus back to substantive policy initiatives. When the focus is on policy, conservatives win. This budget should serve not only as a blueprint for congressional Republicans but as a vision to focus the attention and priorities of the president himself. After the budget betrayal in April, this is the last chance to salvage the core domestic policy promises of this presidency.