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MI Responds: Trump Proposes Budget for 2018

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MI Responds: Trump Proposes Budget for 2018

May 23, 2017
EconomicsBudgetTax

President Trump has proposed a budget that increases government spending from $4 trillion today to $5.5 trillion in 2027. Only in the alternative reality of Washington can this be described as “budget cuts.” Any normal person, looking at an increase of this magnitude, would say that another $1.5 trillion in spending over the next decade constitutes an increase. Looking at individual programs, it is a gross mischaracterization to state that spending on Medicaid programs will be cut, as many commenters did this morning. The new budget proposes to increase federal Medicaid spending from $378 billion a year today to $524 billion a year in 2027. It shows how far removed Washington is from everyday Americans for this increase of $146 billion to be called a cut. The fundamental problem is that special interests are addicted to the rising path of spending. Altering this path by increasing spending at a slower rate opens change-makers to extraordinary attacks, as we have seen today.

—Diana Furchtgott-RothSenior Fellow and former Department of Labor Chief Economist

The President’s budget wisely focuses on reducing the deficit through restraining the escalating spending that is driving deficits upward. While many will complain that reducing the growth of entitlement spending by $2.5 trillion over ten years is excessive, it is still less than $3.3 trillion in reforms that would be needed simply to stabilize entitlement spending at the current level of 13 percent of GDP. In other words, entitlement spending would continue to grow faster than the economy.

The challenge is that the President’s budget takes nearly all of the rapidly-growing Social Security and Medicare costs (as well as defense) off the table, which instead forces deep reforms to Medicaid, antipoverty spending, and domestic discretionary spending. This is not sustainable over the long-run because Social Security and Medicare costs will continue growing rapidly even after lawmakers have run out of other offsets. At that point, the only options will be damaging tax cuts or drastic Social Security and Medicare cuts.

Overall, the budget contains a lot of strong reforms, such as to farm subsidies, that Congress should address. But lawmakers should also reform the big entitlements as well.

Brian Riedl, Senior Fellow

The Trump administration’s proposals to slow the growth of anti-poverty programs are a badly needed corrective to the past decade’s irresponsible and ineffective spending. Medicaid has taken over the safety net, forcing cuts to other priorities and driving up deficits even as it fails repeatedly to demonstrate that it can achieve its objectives. Food-stamp enrollment increased from 26 million to 48 million during the weak economy of 2007 to 2013, yet the rolls shed fewer than 4 million recipients as unemployment fell back below five percent. Common sense dictates that programs like these return to a sustainable, pre-Obama trajectory, after which the safety net will still be larger than at any time in the nation’s history.

Oren Cass, Senior Fellow

MI Responds features real-time commentary from MI scholars on breaking news and developing issues. 

______________________

Diana Furchtgott-Roth is a senior fellow and director of Economics21. She also served on the transition team for President Donald Trump. Follow her on Twitter here.

Brian M. Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter here

Oren Cass is a senior fellow at the Manhattan Institute. Follow him on Twitter here.

Photo by Mark Wilson / Getty
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