Politics & Policy

The Corner

The Power of Assumptions: Budget Edition

President Trump’s FY 2019 budget is out. It is incredibly unrealistic and doesn’t prepare us for the nasty fiscal reality that we will soon face. Now, I should say that every presidential budget is unrealistic. They all project strong and positive economic-growth rates over the ten-year budget window that never materialize. They all promise savings that never see the light of day. They all use budget gimmicks.

But this one is particularly bold coming right after last week’s horrendous budget deal.

In the budget director’s defense, since all budgets are wishful thinking rather than serious and thoughtful documents, I welcome the effort made in this one to at least think through which programs should be terminated altogether. This budget does that and comes up with 22 programs. I could conservatively come up with ten times more budget items to terminate or push down to the states, but that’s a start. Unfortunately, there is no chance that this list will go anywhere, because Congress has no interest in cutting anything out of our gigantic budget. It is still, however, a useful exercise.

The budget also includes a budget-savings document with lots to like. Congress won’t like it, and it won’t go anywhere — but, again, I think it is a useful thing to do, because the time will come when Congress will have no choice but to cut, and now someone has thought through those cuts ahead of time and provided a map.

This list is particularly unrealistic considering that the programs up for reform or termination are all concentrated in the nondefense and entitlement sides of the budget. Adding insults to injuries, the budget jacks up defense spending by roughly $800 billion, infrastructure spending by the promised $200 billion, and also makes some of the expiring provisions in the tax-reform plan passed last December permanent.

Second, even if defense spending wasn’t growing so much, nondefense spending cuts of 40 percent would never materialize right after Congress just passed a nice 10 percent increase in nondefense spending.

All this is to say that if the spending cuts aren’t happening, neither are the projected savings. The economic-growth assumptions are unrealistic in the long run, too. They always are. The short run could see some solid growth, as long as the president stays away from threatening to withdraw from NAFTA and doesn’t scare away all immigrants.

As for spending cuts touted in the press releases, they don’t mean that the government will be spending less money than the year before. In the best-case scenario, they represent a hope that spending growth will come down in the next few years. In FY 2019, the plan is to spend $4.4 trillion, which will grow into $6.1 trillion in FY 2028. That’s a $1.7 trillion growth in spending.

Stronger economic-growth projections (which I doubt can be sustained over ten years short of an innovation miracle) allow for overoptimistic tax-receipts projections. If you add to that bogus spending cuts, you end up with unrealistic deficit projections. The budget projects that the deficit peaks in 2020 at $987 billion, which then starts going down in the out years. The deficits will be down to $363 billion in FY 2028. That would, in turn, allow for lower interest payments than previously projected, and a reduction in the public debt from 80 percent of GDP in FY 2019 to 72.6 percent of GDP in FY 2028. Gross debt would go down, too, from 108.1 percent of GDP to 91.8 percent of GDP.

Wouldn’t that be nice? Don’t count on it. We know what successful fiscal-adjustment packages look like, and this isn’t one.

Here are some numbers that will need updating upward soon:

‐ $45.5 trillion revenue collected over ten years

‐ $52.6 trillion in spending over ten years

‐ $7 trillion in cumulative deficits over ten years

Here is a good chart from Chris Edwards:

Editor’s Note: This post has been updated since its original publication.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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