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President Trump has released his fourth budget, outlining the administration’s policy proposals and budgetary projections for the next decade. Following the pattern of previous years, this budget largely relies on very optimistic projections of economic growth and unlikely budget cuts to reduce the deficit.
According to the administration’s calculations, under the president’s fiscal year 2021 budget:
Under the administration’s calculations, the budget would reduce the deficit from $1.1 trillion (or 4.9 percent of GDP) in 2020 to $260 billion (or 0.7 percent of GDP) in 2030.
Debt as a percentage of GDP would decrease from 81 percent at the end of 2020 to 66 percent at the end of 2030.
Underlying this budget is an assumption that real (inflation-adjusted) GDP will average 2.9 percent growth annually over the next 10 years. Such projected growth is substantially higher than the forecasts by other organizations, including the Congressional Budget Office and the Blue Chip survey of private forecasters.
The president’s budget anticipates that revenues will grow from $3.7 trillion in 2020 to $6.3 trillion in 2030, approximately $291 billion lower than what is projected under current law. The only major revenue proposal is the extension of the individual income, estate, and gift tax provisions from the Tax Cuts and Jobs Act, which are scheduled to expire in 2025. Extending those provisions would decrease the amount of revenues that would be collected between 2025 and 2030 by $1.4 trillion. Other policies in the president’s budget would increase revenues by $199 billion over the next 10 years.
Spending under the president’s budget is projected to be $4 trillion less than under the current-law baseline used by the administration. Over the 10-year period, non-defense discretionary spending would be cut by 19 percent, while defense discretionary spending would be reduced by 5 percent. Spending on mandatory programs would also be reduced by 5 percent.
Under the president’s budget, non-defense discretionary spending would be reduced by more than $1.5 trillion — or 19 percent — over the next 10 years. While non-defense discretionary spending only makes up 15 percent of total spending, activities under this category of spending include scientific and medical research, education, infrastructure, national parks, law enforcement, grants to state and local governments, and pay for federal workers.
While the budget outlines spending priorities through 2030, more detail on proposed appropriations is provided for Fiscal Year 2021. The areas with the largest funding reductions for that year would be from the following departments:
The president’s budget would reduce mandatory spending by a total of $2.1 trillion between 2021 and 2030 compared with projections under current law. Much of the reductions would derive from spending characterized as waste, fraud, and abuse in the Medicaid and Medicare programs, which is difficult to ascertain. Significant cutbacks related to a future healthcare reform proposal, welfare, and education have also been proposed.
Proposed 10-year reductions in mandatory spending include:
Although deficits and the debt-to-GDP ratio would decline under the president’s budget, these estimates are based on very optimistic growth projections and significant cuts that are not likely to be achieved to areas of the budget that are not driving our fiscal imbalance.
Reducing the deficit and debt are commendable goals. The administration and Congress should work together to establish a budget framework that focuses on addressing the key drivers of the debt — rising healthcare costs, America’s aging population, and rapidly escalating interest costs — and uses consensus estimates of economic growth. A realistic and comprehensive fiscal reform plan would give the country a stable fiscal foundation that will support economic growth and better prepare our nation for the future.