I don’t want to get too far into the weeds with this, because one sure way to effectively force people to tune out is to launch into a deep dive and/or a diatribe on Donald Trump’s budget proposal.
Assuming you’ve turned on a television or Googled the word “Trump” over the past 24 hours, you’ve probably read all you care to read about the budget and you’ve likely also seen how angry some folks are about it.
Here’s Elizabeth Warren, for instance:
— Elizabeth Warren (@SenWarren) May 22, 2017
— Elizabeth Warren (@SenWarren) May 23, 2017
No fucks given there when it comes to verbally slapping the administration in the face which is what’s so great about ‘Liz.
Hillary Clinton had a similar assessment. Here’s what she said while making a keynote address at the Children’s Health Fund Annual Benefit on Tuesday night:
[This budget exhibits] an unimaginable level of cruelty. This administration is mounting an onslaught against the needs of children, people with disabilities, women and seniors.
Again, no mincing of the words.
But I imagine readers of a conservative persuasion don’t care too much about what ‘Liz and Hillary say, so how about, instead, I just excerpt a few passages from a new Goldman note in which the bank basically just throws up all over this fucking thing.
The President’s Budget for FY2018 understates the fiscal challenges that Congress will have to address over the next several months. The White House assumes that real GDP growth will rise from 2.3% in 2017 to 3% by 2021. This aspirational growth assumption flatters the fiscal outlook and makes it easier for the White House to project a balanced budget by 2027 but it will play no direct role in the congressional fiscal debate later this year, since congressional deliberations will be guided by estimates from the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT).
Previous administrations have often assumed above-consensus growth rates, though they have usually not been as materially different to the CBO or private sector forecasts as the Trump Administration’s forecasts (Exhibit 1, left panel). In the President’s Budget, economic feedback is explicitly assumed to result in $2.1 trillion of deficit reduction versus the “pre-policy” baseline, though the pre-policy baseline deficit itself is nearly $700 billion below the CBO baseline projection published earlier this year.
Allow us to interject: that bolded and underlined bit is hysterical.
Ok, back to Goldman:
More notable is that the President’s budget does not actually propose a specific tax cut, though the White House budget proposal refers to tax reform in general terms. This is surprising, because the budget proposal does specify 13 other “major initiatives” like the repeal and replacement of Obamacare, an infrastructure program and several smaller reform initiatives that the White House has not spent much time discussing publicly, like changes to student loan and welfare programs. Omitting the cost of the White House plan probably reduces the cumulative deficit by $3 trillion to $4 trillion over the next ten years, which is roughly what we expect the cost of the recent White House tax reform outline would be.
As with most presidential budgets, few of the proposed reforms are likely to be achieved. The President proposes $3.4 trillion in spending cuts; the White House assumes $250bn over ten years in savings from Obamacare repeal and replacement, despite the CBO’s estimate that the prior version of the legislation reduced the deficit by only $150bn, an amount that might decline further when the CBO releases a revised estimate on May 24. More importantly, the budget assumes nearly $1 trillion in savings from changes to Medicaid, welfare programs, and disability insurance, separate from Obamacare repeal (Exhibit 1, right panel). In theory, Republicans in Congress could accomplish some of this by using the budget reconciliation process. While there have been some reports that House Republicans might include an instruction in the upcoming FY2018 budget resolution to cut mandatory spending by $400 billion or so over ten years, we are skeptical that cuts of this size would actually pass.
The White House proposes cutting domestic spending appropriated by Congress by $1.4 trillion (22%) over the next ten years; $469 billion of these savings would be used to fund additional defense spending. For FY2018, which begins October 1, 2017, the budget proposes a $54 billion (9%) increase in the regular defense budget and a $54 billion (9%) cut to non-defense spending; while a small boost to defense spending is possible, such a cut to non-defense spending looks unlikely.
On infrastructure, there appears to be less of an aggregate boost in infrastructure funding than what the headlines might suggest. The White House proposes $200bn in new infrastructure funding over the next ten years, which the White House suggests would finance $1 trillion in total investment by public/private partnerships. However, the budget also assumes that the Highway Trust Fund (HTF) will spend only as much as it takes in. The HTF relies on gasoline tax revenue and has needed infusions of general funds over the last few years to continue to operate. This makes little difference in the short term, but would result in $96 billion less in highway spending over the next ten years than currently projected. Along with the effect on infrastructure of the domestic discretionary spending noted above, the overall net federal contribution to infrastructure under this proposal looks fairly modest.
In general, the President’s Budget is a political document more than a working fiscal proposal.