By Peter Nicholas, Kate Davidson and Nick Timiraos
President Donald Trump on Tuesday will propose a plan he says
will balance the federal budget in a decade on the strength of
substantially faster economic growth and cuts to taxes and
government safety-net programs.
Programs that would see dramatic cuts include Medicaid, food
stamps, disability benefits, welfare and student loans. The White
House says the planned tax cuts can generate more revenue for the
government rather than reduce it.
Mr. Trump's budget proposal -- the clearest window yet into the
new president's expectations and priorities -- now goes to
Congress, which will decide whether to turn the vision into
reality. It is sure to face a difficult road on Capitol Hill,
despite Republican control, given competing factions within the GOP
and the near certainty of blowback from Democrats.
"It'll face a tough sled over here," Rep. Hal Rogers (R., Ky.),
a former chairman of the House Appropriations Committee, said of
the Trump budget.
Budget director Mick Mulvaney, briefing reporters on Monday,
described how Mr. Trump arrived at the blueprint, personally going
over proposed cuts line by line and delivering a verdict: "Yes" or
"No."
Mr. Trump himself won't be on hand to sell the plan in
Washington. He is on his maiden overseas trip as president,
traveling through the Middle East and Europe.
"I can't remember a major budget submission that wasn't
scheduled around a presidential availability and the president
using it as an opportunity to drive his message forward," said
Jason Furman, a senior fellow at the Peterson Institute for
International Economics and a former top Obama administration
economic adviser.
The budget would cut overall spending by $4.5 trillion over a
decade. That includes reductions to decades-old safety-net programs
most identified with Lyndon Johnson's Great Society push of the
1960s. Those cuts would more than offset a short-term boost in
funding to the military, $200 billion on infrastructure investment
and $19 billion on a new parental leave program.
Among the reductions, the president's budget proposes $250
billion in saving over a decade through the repeal and replacement
of the Affordable Care Act, President Barack Obama's signature
legislative policy. Those savings would come largely through
reductions to Medicaid, the federal-state health insurance program
for low-income people. Other unspecified reforms to Medicaid and
the federal Children's Health Insurance Program would shave another
$616 billion from government spending through 2027.
As a candidate, Mr. Trump promised not to cut Medicaid. Asked
about that pledge, Mr. Mulvaney said that much of the Medicaid cuts
spring from changes included in the health-care overhaul that has
passed the House and which Mr. Trump favors.
"It probably is the most conservative budget that we've had
under a Republican or Democrat administration in decades," said
Rep. Mark Meadows (R., N.C.), chairman of the House Freedom Caucus,
a group of roughly three-dozen conservative House GOP
lawmakers.
Some budget analysts said Republicans may resist spending cuts
for safety-net programs, particularly as they pursue tax cuts that
would lower rates for businesses and high-income households.
"Politically that is extremely difficult," said William
Hoagland, a former congressional Republican budget aide who is now
at the Bipartisan Policy Center in Washington. "You're talking
about tax reform that would appear on the face of it to benefit the
upper-income brackets while you're reducing support to the
lower-income groups."
Underlying the plan to eliminate the budget deficit, the White
House is projecting a decade of rosy economic conditions -- 3%
growth, steady inflation of 2%, the jobless rate rising slightly to
4.8% and modest interest rate increase -- the kind of environment
that would typically go in hand with strong worker productivity
growth and a pickup in the labor force.
"The ugly truth is this: You can never balance the budget at
1.9% growth, " Mr. Mulvaney said. "It's just not going to
happen."
One big question is whether much faster growth is achievable;
the U.S. is already nearly eight years into an economic expansion
with a low unemployment rate of 4.4% and the Federal Reserve
raising short-term interest rates, which tends to curb growth. No
expansion in history has lasted longer than 10 years. Moreover the
economy has been held back by slow productivity growth and
declining labor-force participation as the baby boom generation
retires.
The Fed projects the economy will grow at a 1.8% annual rate in
the coming years and the Congressional Budget Office projects 1.9%
growth.
The administration is counting on tax and regulatory changes to
stimulate growth. Faster growth, in turn, is projected to help
reduce demand for safety-net programs such as food stamps and
welfare.
Taken together with aggressive spending cuts the Trump
administration says it can balance the budget by reducing outlays
by $4.5 trillion over 10 years and increasing revenues -- even with
cuts in tax rates -- by $1 trillion. Republicans have yet to
coalesce around a common plan for cutting corporate and individual
tax rates and face procedural hurdles to advancing a program,
leaving the tax strategy a work in process.
At Mr. Trump's direction, the budget includes no cuts to the
most popular entitlement programs: Medicare and Social Security,
Mr. Mulvaney said.
The president's budget would impose new work requirements for
able-bodied individuals to participate in the Supplemental
Nutrition Assistance Program, also known as food stamps. It would
also phase in a requirement that states match federal funding for
the program, changes aimed at saving roughly $193 billion over the
coming decade. In the recession triggered by the financial collapse
in 2008 as many as 47 million people used the food-stamp program.
That number has dropped by about three million as the economy has
gradually recovered.
The budget would also limit eligibility for the earned-income
tax credit and the child tax credit, trimming $40 billion of
spending over the next 10 years, and would slash funding for
disability insurance by $72 billion. Other spending cuts include
$143 billion from changes to student-loan programs, $63 billion in
reduced retirement benefits for federal employees, and $38 billion
to curb certain farm subsidies.
Nondefense spending as a share of the economy would fall to just
1.5% by the end of the next decade, well below the lowest level in
records going back to 1962.
"There's a certain philosophy wrapped up in the budget," Mr.
Mulvaney said. "And that is we are no longer going to measure
compassion by the number of programs and the number of people on
those programs. We're going to measure compassion and success by
the number of people we helped get off those programs and get back
in charge of their own lives."
--Kristina Peterson contributed to this article.
Write to Peter Nicholas at peter.nicholas@wsj.com, Kate Davidson
at kate.davidson@wsj.com and Nick Timiraos at
nick.timiraos@wsj.com
(END) Dow Jones Newswires
May 22, 2017 21:14 ET (01:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.