Acton Institute Powerblog

Fast facts: President Trump’s proposed budget for FY2021

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On Monday, President Donald Trump released his proposed budget for fiscal year 2021. The proposal touches on every area of economic activity, from taxes to spending, to regulation and the value of work. While the budget is a welcome step toward reduced spending, lower regulation, and a growth-oriented dynamic economy, bolder reforms are needed to establish fiscal solvency and restore the government to its constitutional prerogatives. Here are the facts you need to know.

Total spending and the national deficit: The president’s “Fiscal Year 2021 Budget: A Budget for America’s Future” spends $4.89 trillion. It “includes $4.4 trillion in savings – bringing deficits down each year, and putting the federal government on a path to a balanced budget” … by 2035. His proposed budget would add $1.083 trillion to the national debt, which stands at more than $23 trillion, this year and nearly a trillion dollars in the following two years.

The overall trajectory moves the United States toward greater stability. The current U.S. debt-to-GDP ratio stands at 81 percent, and would reach 100 percent of GDP by 2030. Under Trump’s proposed budget, the debt would amount to 66 percent of GDP in a decade.

Robust projected growth would mean that by 2030 less than one in every five dollars in the economy would be consumed by the federal government – but that’s the rub.

Optimistic outlook: The president projects vastly larger economic growth than the Congressional Budget Office. The president’s growth projection for 2025 is literally double that of the CBO. The fact that the CBO repealed the use of dynamic scoring at the beginning of the 116th Congress may explain some of this difference.

Extended tax cuts: The president’s budget assumes the tax reductions passed as part of the 2017 Tax Cuts and Jobs Act (TCJA), scheduled to expire in 2025, will be extended permanently. However, the budget as presented does not continue immediate business expensing beyond the end of 2022; this practice rewards firms that invest in capital goods by letting them write off the full expense in the same year, rather than over several. Administration officials say a more robust tax reduction package will be proposed this summer.

$4.4 trillion in spending cuts: The president’s proposed budget forecasts $4.4 trillion in budget cuts, about half of them ($1.9 trillion) by paring back non-defense discretionary programs. It is refreshing that these represent real budget cuts, not merely reductions in the rate of growth (which talking heads of both parties erroneously describe as “cuts”).

Moreover, many of these cuts would occur within agencies that have the greatest regulatory footprint. The budget for the Department of Commerce would nearly be halved with the proposed 48 percent reduction. The Environmental Protection Agency would lose 26 percent of its budget, while the president “would eliminate almost 50 wasteful programs that are outside of EPA’s core mission or duplicative of other efforts, saving taxpayers over $600 million.” Foreign aid would fall by 21 percent. The Dept. of Housing and Urban Development (HUD) would see its budget cut by 15 percent, largely by returning authority over some housing programs to state or local governments.

“Those changes sound large but would represent just seven percent of projected federal spending over the next decade of $61 trillion,” writes Chris Edwards of the Cato Institute.

Commitment to further deregulation: The budget notes that the Trump administration’s “deregulatory-to-regulatory action ratio has been a remarkable 7.4-to-1, resulting in a total of $51 billion in net regulatory cost savings for the American people. This is a stark contrast to the $420 billion in net regulatory costs imposed by the Obama administration during the same amount of time.” The president plans “even bolder efforts during the remainder of 2020,” citing concrete action on CAFE standards and allowing greater innovation for small businesses.

School choice: Perhaps sending a message, the president’s FY2021 budget requests $66.6 billion for the Department of Education, a modest reduction. But this would “consolidate 29 overlapping elementary and secondary programs into a new block grant,” which “saves taxpayers nearly $4.7 billion.”

The education budget would allocate up to $5 billion annually for Education Freedom Scholarships, a tax credit for those who donate to state-based scholarship funds for use at private schools. A lawsuit over a similar program is pending before the Supreme Court. While a commitment to school choice is welcome, some are concerned even an arms-length entanglement of federal money in private education could open the door to stifling regulation.

Restoring work requirements for federal benefits: The proposed budget would require “able-bodied, working-age individuals, aged 18-65 years old” who receive federal benefits, such as Medicaid and Temporary Aid to Needy Families (TANF), to work at least 20 hours a week. The law includes categories of exemptions but reestablishes the importance of work for all who are able, moving people from government dependence to self-reliance.

This will also realize meaningful savings. The budget forecasts $182 billion in savings from reforming the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) and $193 billion by rolling back the Medicaid expansion and CHIP funding. Overall, the growth of Medicaid would be slowed from five percent annually to two percent. The relief will be felt nationwide, as swelling Medicaid rolls are straining state budgets from coast to coast.

The border wall: The FY2021 budget requests a mere $2 billion to build the wall across the nation’s border with Mexico. “At a glance, that might be seen as a sign Trump is giving ground,” writes Niv Elis in The Hill. But “in reality, it shows how he has successfully dodged Congress to provide funds for the wall without the cooperation of Democrats.” President Trump declared a national emergency, which allowed him to repurpose money Congress allocated for other programs to border security.

From the moon to Mars: Trump boosts NASA funding by 12 percent, including $3 billion to finance a new human lunar landing by 2024. (The last took place in 1972.) This mission will “build a sustainable presence on the lunar surface as the first step on a journey that will take America to Mars.”

Modest Medicare reimbursement reform: Medicare pays a higher reimbursement rate for procedures performed at a hospital than in a doctor’s office. Paying the same rate for the same procedure would save $270.3 billion.

However, the budget does not contain any bold, sweeping reform to the two largest federal entitlements: Medicare and Social Security. The Trump administration seems to believe the government can grow its way out of the structural issues present in both. Even if the most optimistic forecasted growth came to pass, it would not correct the unsustainable design flaws of intergenerational transfer programs.

Partial privatization of government-run industry: The budget would privatize some of the assets of the Power Marketing Administrations. The federal government began the projects during the New Deal era. The Heritage Foundation notes, “Originally intended to pay off federal irrigation and dam construction and to provide subsidized power to poor communities, the PMAs now supply such areas as Los Angeles, California; Vail, Colorado; and Las Vegas, Nevada.” This is a good first step toward getting the federal government out of private industry.

Federal funding of daycare: President Trump’s FY2021 budget would make “a $1 billion one-time investment” via grants for state governments to “build the supply” of child-care providers.

Pushing states to adopt paid parental leave policies: The president, spurred on by daughter Ivanka, has championed paid parental leave for new parents. The budget would push states “to establish paid parental leave programs in a way that is most appropriate for their workforce.” While many parents wish for greater paid leave, use is uneven between the sexes, and women express a far greater desire for overall workplace flexibility. Evidence exists that California’s program reduced employment by seven percent and would cost taxpayers up to $2,000 a year in additional taxes.

The last thing anyone needs is another government program which lacks constitutional authority and could saddle future generations with even more debt.

Potential impact: By continuing the regimen of economic freedom that has generated enviable economic growth, President Trump could set the United States on a course toward greater prosperity. “Some pundits will say that the Trump spending cuts will hurt the economy, but that narrative is false. Large spending cuts would spur economic growth by leaving more resources in the private sector and allocated by markets. Federal spending causes microeconomic damage that undermines growth,” explains Edwards.

But it won’t pass: Under the Constitution, all spending bills must originate in the House of Representatives. “The budget is a statement of values,” said House Speaker Nancy Pelosi, “and once again, the president is showing just how little he values the good health, financial security and well-being of hardworking American families.” Senate Democrats said, “The Trump budget is breathtaking in its degree of cruelty and filled with broken promises,” indicating unipartisan, bicameral backlash.

As such, budget proposals act more as statements of political intention than as policy-crafting documents. “Frankly, budgeting has become pretty much a joke in this country, where budgets are used as messaging documents and an excuse to trade insults,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

The president’s budget makes welcome cuts to programs that encourage government dependence and underscores the dignity of work. The latter is particularly valuable to those who look at the budget through a scriptural lens guided by the injunction that “if any would not work, neither should he work.” It provides a welcome contrast with Alexandria Ocasio-Cortez’s “Green New Deal,” which guarantees federally funded economic security to those “unwilling to work.”

However, the budget misses an opportunity to ask for bolder reforms to federal transfer programs, deepens the national debt, and entangles the government in new, unconstitutional programs. More fundamental reforms than those outlined in this aspirational budget would be necessary to return the federal government to its constitutional functions.

That said, this clearly delineates many of the steps necessary to restore fiscal solvency, respect for conscience rights, independence, federalism, and economic growth – values every person of faith should appreciate.

(Photo credit: Public domain.)

Rev. Ben Johnson

Rev. Ben Johnson is Executive Editor of the Acton Institute's flagship journal Religion & Liberty and edits its transatlantic website.