Wednesday, March 13, 2019

Understanding the President’s Budget Proposal

David Super

     On Monday, March 11, President Trump released his proposal for the last meaningful budget of his first term.  It will cover the period from October 1, 2019, until five weeks before the 2020 presidential election.  To avoid either a pre-election government shutdown or embarrassing pre-election concessions, the President and Congress will almost certainly agree to a continuing resolution to cover the pre-election period, with the final 2021 budget’s contours determined by the election’s victors.  This is, therefore, President Trump’s final opportunity to insert his priorities into law during this term.

     The popular media has done a fair job of capturing the broad themes:  large increases in defense spending, making upper-income 2017 tax cuts permanent, and a partial offset of those costs with dramatic cuts in programs assisting low- and moderate-income people.  President Trump also manages, in one document, to breach all three parts of his campaign promise not to support cuts in Social Security, Medicare, and Medicaid.  The purpose of this post is to provide a few specifics and to discuss what comes next, procedurally and politically. 

     The Congressional Budget Act makes the President’s submission of a budget proposal the de facto start of the annual budgeting process.  It was due in early February, but the partial federal government shutdown made that impossible as budget proposals build on the current year’s budget, which was still unresolved.  Historically, presidents’ budget proposals have been a mix of serious proposals for the more mundane “housekeeping” parts of the federal budget and aspirational proposals that the President knows Congress is unlikely to accept as-is.  The mix between practical and ideological proposals has shifted over the years. 

     A few customary ground rules have applied to presidential budget proposals, although some of these norms are becoming quite frayed.  The president’s budget proposal is typically the high water mark for his party’s initiatives:  the opposing party cites the president’s budget much as trial lawyers cite party admissions to reject out of hand any proposals going farther.  This practice has discouraged realistic presidential budget proposals.  Thus, during the Clinton and Obama Administrations, congressional Democrats could expect no traction for social initiatives not in that year’s presidential budget proposal.  President Trump has not felt bound by this tradition:  his proposals for a border wall, for example, evolved repeatedly from last year’s budget proposal. 

     Presidents also express their aspirations for overall fiscal effects – the size of deficits or surpluses and the division of funds between defense and non-defense programs – in their budget.  The seriousness of these aspirations can be assessed by the degree to which the budget depends on accounting gimmicks or proposals that obviously lack congressional support. 

     Since the Budget Control Act of 2011, presidential budgets also have had to take a position on whether they will adhere to the draconian caps on annual appropriations (“discretionary spending”) that that law and its subsequent sequestration imposed.  No president or Congress since then has found a palatable way to operate the federal government within those funding constraints.  As a result, Congress has passed and presidents have signed a series of bipartisan deals increasing those caps for two years at a time, offsetting part of the cost with cuts in domestic entitlement programs.  The most recent such deal, signed by President Trump, expires at the end of the current fiscal year. 

     Even by the standards of recent presidential budgets, President Trump’s proposal is quite extreme.  He does not propose new legislation raising the caps on discretionary spending, which would force Congress to write appropriations bills to fit within the “sequestration” limits.  This would mean an 11% average cut in non-defense discretionary (NDD) spending in 2020 below the current year’s levels after adjusting for inflation.  Because he proposes large increases for the Department of Homeland Security, which falls within the NDD category, the actual cut he would require from other programs would be even greater.  The President’s budget assumes further reductions in NDD spending in future years:  by 2021, it would be the smallest share of the economy since the Hoover Administration and over ten years it would drop 40% after adjusting for inflation.  Apparently recognizing that these cuts are politically untenable, the Administration is claiming that they are much smaller than they are. 

     Although President Trump’s budget purports also to apply the comparably severe caps on defense spending, it evades the effect of those caps with a giant accounting gimmick.  It transfers substantial amounts of regular Pentagon spending into a special category, Overseas Contingency Operations (OCO), that is exempt from the caps.  OCO was intended to pay the special costs of the wars in Afghanistan and Iraq on an emergency basis.  The Pentagon has long reclassified parts of its regular operating budget as OCO, but President Trump’s converts this stream of extra Pentagon funding into a raging torrent:  defense spending designated as OCO would jump from $69 billion to $165 billion in a single year.  This obliterates the Budget Control Act’s commitment to have defense and non-defense spending subject to parallel constraints.  Both Mick Mulvaney, the President’s Chief of Staff and former budget director, and former House Speaker Paul Ryan harshly criticized much more moderate abuses of the OCO device when they were in Congress. 

     Even the President’s proposals for non-defense discretionary spending do not appear designed to be taken seriously.  For example, he would cut $5 billion from the National Instituted of Health, which enjoy broad bipartisan support.  He would terminate low-income energy assistance and the Community Services Block Grant, which funds the remnants of War on Poverty service programs.  Even Republican Congresses have ignored deep cuts proposed for these programs in the past.  He would slash the Job Corps and dislocated worker programs serving the very people for whom he claims his trade war is being fought.  Few in Congress will want to be associated with those cuts.

     Most of the President’s supposed domestic initiatives in the budget also are gimmicks.  He boasts of a new fund of money for infrastructure but appears to cut transportation and housing funds by even more, resulting in a net reduction in federal infrastructure spending.  He claims to be launching major efforts against the opioid epidemic and HIV, but he would deeply cut Medicaid – the primary source of treatment funding for many fighting addition and HIV infection – with the result that fewer total resources would be available. 

     Critics are no doubt correct that this budget proposal will be “dead on arrival” in Congress:  almost all presidential budget proposals are.  It nonetheless remains significant for several reasons.  First, it provides a comprehensive statement of this Administration’s values and priorities.  It makes the 2017 upper-income tax cuts permanent – at a cost of $275 billion in 2028 alone – at the same time it would impose 30% reductions in food stamps as well as deep cuts in Social Security Disability Insurance, Supplemental Security Income for the elderly and disabled, Medicaid, and family income support. 

     Second, the President’s proposal to replace the Affordable Care Act with an inadequately funded block grant – along with his proposed Medicare cuts – confirms that the Act has now become firmly entrenched.  Republicans will continue to condemn the Act, but few will want to run on this proposal in the 2020 elections.  Even if Republicans win, they will have no mandate to launch another effort to repeal the Act.  The Act’s entrenchment has important broader implications for U.S. public law.

     Finally, the budget proposal’s insistence on adhering to the sequestration spending caps, however disingenuous, suggests that the Administration will resist negotiating a new bipartisan agreement to raise those caps.  Neither party’s appropriators are likely to want to vote for bills containing such draconian cuts.  The House likely will pass a “deeming resolution” waiving points of order against considering bills over the caps.  Senator McConnell likely will be reluctant to do the same so the Senate may be unable to bring appropriations bills to the floor.  In any event, neither chamber probably can pass appropriations bills at the sequestration levels, and without such legislation appropriations above that will result in new automatic across-the-board budget cuts. 

     Postponing all the complex, contentious decisions that appropriations entail to the last minute will greatly increase the chance that a snag will trigger another federal government shutdown.  That is already a significant likelihood because Democrats and some Republicans will want to insulate appropriations accounts from “emergency” transfers to build the President’s proposed border wall. 

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