President Trump is today sending to Congress a budget that manages to be both silly and savage. It is silly because it is replete with massive gimmicks and logic errors that allow the Administration to claim a balanced budget when they have not really proposed anything close to that. It is savage because there are some very real cuts that, if ever enacted, would devastate millions of low- and middle-income families (see a good initial rundown of those cuts here).
This post focuses on the silliness—the gimmicks.
The Administration says it is proposing to balance the budget by 2027. And, yes, the President’s budget has tables showing just that. By 2027, the budget would result in a $16 billion surplus according to the Administration’s projections. Voila.
Really, that should be something more like a $1.3 trillion deficit—a deficit in the range of 4 to 5 percent of GDP in 2027. And debt should rise to over 90 percent of GDP under the Administration’s policies as opposed to the Administration’s projection of it falling to about 60 percent of GDP.
The figure below illustrates the difference between the Administration’s deficit projection and a rough reality-adjusted projection.
How could there be such a big difference between realism and the Administration’s projections?
From a quick skim of the budget, three gimmicks stand out:
Wishful thinking on economic growth. The Administration claims that its policies will spark much faster growth, generating about $2 trillion in deficit reduction over a decade from that growth—with $500 billion of those savings occurring in 2027 alone.
But, the economic growth the Administration is projecting is massively and unrealistically optimistic. As Chad Stone at CBPP points out, there has never been as big a gap between an Administration’s growth assumptions and those from the Congressional Budget Office. And, in fact, some of the Administration’s major policies—deficit-financed tax cuts, curtailing immigration, cutting key investments such as medical research—probably go the wrong direction on growth and, overall, could wind up shrinking the economy rather than the opposite.
So, taking out these “juiced” growth estimates means that the deficit in 2027 would stand at just under $500 billion rather than being a small surplus, based on the Administration’s own numbers.
Forgetfulness on trillions in tax cuts. Yes—the Administration “forgot” its tax cuts. Or, they didn’t really forget them. They make several appearances in the budget, just not in a way that makes any sense.
In the budget documents they circulated, the Administration reiterates the same broad tax parameters that it released a few weeks ago and largely reflecting the plan Trump rolled out on the campaign trail. That cuts the corporate tax rate by 20 points to 15 percent; it cuts the rate on “pass-through” businesses (like law firms and hedge funds) to 15 percent as well; and the tax cuts go on. Yes—the Administration has suggested some “base broadening” but nowhere near enough to pay for the tax cuts.
The tax cuts also make an appearance in the budget’s juiced growth figures, which the Administration in part justifies based on its planned tax cuts. That growth is surely overstated and the result might in fact be a smaller economy given that these tax cuts are largely deficit-financed, but the Administration claims that growth nonetheless.
So, this all makes it especially odd that the budget, for the most part, doesn’t include the cost of the tax cuts. That’s right. They’re just not there. As Greg Leiserson at the Washington Center for Equitable Growth has described, it’s in fact a basic logic error to claim the budgetary benefits of the resulting growth without accounting for the cost of the tax cuts themselves. Larry Summers rightly just called it “the most egregious accounting error” in a President’s budget in the nearly 40 years he has tracked them. The only tax cuts the Trump budget includes are the about $1 trillion in revenue loss from the repeal of the Affordable Care Act.
However, the Tax Policy Center estimated that the Trump campaign plan costs about $6 trillion more than that over ten years. Based on the more recently released details, the Committee for a Responsible Federal Budget put the additional cost at over $5 trillion.
So, let’s call the forgotten cost of Trump’s tax plan about $5 trillion over a decade—and about $5.7 trillion including interest costs from additional borrowing. In 2027 alone, that’s about $750 billion in forgotten costs. Put that together with removal of the juiced economic growth and a surplus in 2027 turns into a $1.2 trillion deficit.
Assuming a spoon. Then there are smaller gimmicks in the budget that should raise eyebrows. To name one that stood out: reducing improper payments by about $140 billion over the decade and nearly $60 billion in 2027. The Administration specifically claims that it will eventually halve improper payments to save this money. Improper payments are payments for the wrong amount, going to the wrong person, with improper documentation, or being used for the wrong purposes. Of course, reducing improper payments is generally a good thing; they are improper after all. But, not all improper payments, if corrected, would actually reduce spending. Some improper payments are under-payments; others just reflect a lack of proper documentation that, if corrected, wouldn’t reduce payments—the same amount would be owed.
The Obama Administration estimated that its proposed program integrity initiatives in Social Security, Medicare, and Unemployment Insurance would save just under $10 billion per year after ten years. That’s a reality-adjusted figure. (The Obama Administration got much bigger savings by devoting funding to going after tax cheats, but the Trump Administration ignores that opportunity.) So, the Trump Administration seems to pull its $140 billion figure out of thin air, even as many of its proposals would devastate agency budgets over time—the very agencies that are meant to be improving administration and reducing improper payments.
With these “savings” backed out of the budget, the deficit in 2027 rises to $1.3 trillion.
More analysis of the budget is needed in the days and weeks ahead. But, the overall conclusion seems clear: This budget doesn’t do anything like what the Administration says. Its proposals, if enacted, would devastate many programs—the safety net and core agency functions in particular. And, the budget doesn’t make these sacrifices for the sake of a balanced budget or even a low deficit. The budget does it mostly for tax cuts that the Administration has been advocating, even if their costs aren’t shown.
That’s the trade-off really proposed by this Administration—the trade-off it is offering Congress as budget negotiations for the upcoming fiscal year kick off.
- The Administration shows the effect of higher growth on the budget in Table S-3 (giving the baseline). A memorandum item in that table shows the baseline budget projection without the Administration’s assumed economic feedback from its policies. This can be compared to the baseline with the economic feedback.
- I assume that the cost of the tax cuts is constant as a share of the economy from 2018-27, totaling to exactly $5 trillion over that period.
- The Trump budget does include a small amount for program integrity initiatives. The amounts are roughly the same as those included in the Obama budget, outside of program integrity funding for the IRS. However, the Trump budget then cuts agency budgets dramatically—cuts that would tend to undermine the basic administrative functioning of many agencies and swamp the small amounts specifically provided for program integrity.