Trump’s phony budget relies on rosy economic assumptions and imaginary savings – Washington Examiner
President Trump’s budget has been billed as slashing deficits by trillions of dollars through what media outlets are billing as “deep” spending cuts. In reality, its savings are mainly imaginary — highly dependent on rosy economic forecasts and vague promises to eliminate “waste, fraud, and abuse.”
Assuming significantly faster economic growth over the next decade than the Congressional Budget Office does enabled the White House Office of Management and Budget to adopt much more optimistic assumptions about federal tax revenues. This made the budget math look a lot better, allowing Trump’s team to avoid outlining more detailed reforms.
Specifically, over the course of the 2020 to 2029 window in question, the Trump administration assumes that annual economic growth would average about 2.9 percent, compared to the CBO’s estimate of 1.7 percent. To provide a sense of how significant this is, it means that in 2029, the end of the projection period, the White House expects the economy to be $4.1 trillion larger than what the CBO is assuming.
While I’m the last person in the world who would say the CBO is infallible, it’s worth noting how much of the OMB assumptions depend on there being 10 years of sustained strong economic growth.
If you were to just slap CBO’s baseline revenue assumptions onto the Trump budget without changing anything else, the budget would result in cumulative deficits of $10.1 trillion, thus wiping out all of the $2.8 trillion in deficit reduction claimed by the Trump administration.
The rosy economic forecasts also make the spending appear much smaller in proportion with the economy. For instance, the budget proposes increasing defense spending by $510 billion, yet by the end of the decade, defense spending is only projected to account for 2.3 percent of GDP, compared to 2.5 percent under the CBO baseline, which assumes lower defense spending.
The budget does make some changes that, if enacted, would result in lower spending, such as overhauling Obamacare and Medicaid to hand over more control to the states, and adding work requirements to Medicaid and other public assistance programs, which would likely reduce enrollment.
But much of the other so-called “savings” are a mirage.
For instance, the administration is touting a 5 percent cut to nondefense discretionary spending without specifying, in detail, where such significant reductions would be coming from.
Additionally, though the plan is being attacked as cutting Medicare by $845 billion, in reality, there aren’t any specifics on how the administration wants to achieve that. There are some tweaks to how Medicare pays for drugs, such as changes to encourage the use of generics. But the drug pricing reforms in the entire budget, which include changes to other programs such as Medicaid, only account for $69 billion in deficit reduction, according to the OMB’s own math. The rest of the “savings” are chalked up to the old Washington standby: a vague promise to reduce “waste, fraud, and abuse.”
There are no major structural reforms to Medicare that would actually put the program on a sustainable fiscal trajectory.
Acting OMB director Russ Vought acknowledged this much in a press conference discussing the budget.
“He’s not cutting Medicare in this budget,” Vought said. “What we are doing is putting forward reforms that lower drug prices that because Medicare pays a very large share of drug prices in this country, has the impact of finding savings. We’re also finding waste, fraud, and abuse, but Medicare spending will go up every single year by healthy margins and there are no structural changes for Medicare beneficiaries.”
Trump’s budget is not going anywhere in a divided government. But it will be used by Democrats to warn of draconian cuts, and cited by Trump and his apologists to argue he’s getting serious about the debt, all the while, the actual savings are imaginary. This, in a nutshell, represents the state of political discourse surrounding the unsustainable federal debt.