Acting Budget Director Russ Vought said, after the release of the president’s budget this week, “This budget will balance in 15 years. It includes more deficit reduction – 4.6 trillion – than any president in history.” He added, “[This budget] continues to do everything we can to deal with the trillion dollar deficits that we’re seeing as a result of Congress ignoring the President’s spending reductions over the first three years.”
This boast would be funny if it weren’t so depressing.
First, we know that presidential budgets are mostly magical thinking parading as real accomplishments. Vought is right that Congress will mostly ignore the $4.6 trillion (over ten years) in proposed spending reductions, many of which are good. In the end, the budget that Congress will actually pass and that the president will actually sign will look quite different from this proposed budget.
And so under the conditions, isn’t it a little premature to brag about “historic cuts” when the budget director knows from his experience the last three years, but also from his years commenting on the dangers of deficit spending while working for the Heritage Foundation, that these cuts will never see the light of day? It’s kind of like me sending 25 op-ed pieces to the New York Times at once, and then announcing to the world – before I hear a word from the editors – that I’m on track to have the highest publication rate in the NYT’s history!
In addition, it is easier to make proposed cuts sound gigantic when the government spends hyper-gigantic amounts of money. For instance, President George W. Bush’s first budget projected cumulative spending over a decade of $21.6 trillion (Table I. 1 here). Cuts of $4.6 trillion out of that projected spending would have represented 21.2 percent of the budget. That would have been impressive. Yet in today’s world, that $4.6 trillion represents a mere 8.1 percent of the $56.3 trillion (Table S-1 here) that President says Uncle Sam will spend over the course of the next decade.
Also, don’t feel too sorry for the beneficiaries of the programs that are being “cut” because they are not actually going to see their budget go down. What will be reduced is the rate at which the spending will grow. For instance, Uncle Sam will go from spending $4.8 trillion in FY2021 to spending $6.6 trillion in FY2030. Now, I am happy that they have some cuts in the budget, especially some of the structural ones, but let’s not pretend it is what it isn’t.
Second, barring an economic miracle, I can promise you, sadly, that this budget will not balance in 15 years. In addition to the fact that this projection counts on all of its proposed spending reductions being implemented in full, unrealistic economic assumptions do most of the work in balancing the budget. As I wrote earlier this week:
“For instance, while the economy grew 2.4% in 2017, 2.9% in 2018 and 2.3% in 2019, the White House projects that the economy will grow at about 2.8% annually for a decade straight. The budget also counts on interest rates staying low, so as to not massively increase the amount of interest payments that will have to be made. The low interest rate, paired with the planned savings, would lower interest costs by $300 billion. Unfortunately, this is a mirage. According to the Committee for a Responsible Federal Budget, “Using more realistic economic assumptions, the budget deficit would be about $1.2 trillion (3.7 percent of GDP) in 2030,” as opposed to the $261 billion projected by the White House.”
Now there is nothing historic about Mr. Trump’s making his budget look good by using fantastical assumptions. All presidents perform this theatrical trick. For instance, no president ever projects that the economy will experience a slowdown in the next ten years of the budget window even though, on average, the economy slows down every 7 years.
Third, the budget makes projections over a ten-year period. Can we please stop pretending that projections beyond the first year are actually meaningful? There is some value in going through the exercise of proposing a multi-year budget series, but we should not take it too seriously.
As evidence, I have gone through the budgets of the last four presidents and checked their predictions of what the budget deficit would be four years down the road. They are always wrong, often by a very large margin. For instance, President Trump’s first budget (FY2018) said that in FY2021, the deficit would be $456 billion. Yet in reality, it is going to be nearly $1 trillion (and probably more once Congress is done with this budget).
In this aspect, too, he is no different from his predecessors. President George W. Bush’s first budget projection predicted that FY2005 would see a surplus of $273 billion, but what we got instead was a deficit north of $318 billion. Before that – and in a different direction – President Clinton started his second term on the assumption that his final budget would be a $36 billion surplus, but instead it ended up being a $129 billion surplus.
Now obviously, some events are wholly unpredictable, such as the 9/11 terrorist attacks and the tech boom. Knowing how much can happen by surprise, and how many unrealistic assumptions are packed into the projections, I wish everyone would treat these projections as mere political soundbites and theatrical props.
Finally, I can promise you that this budget isn’t a document produced by an administration that “does everything [it] can to deal with the trillion dollar deficits.” With the help of Congress, Mr. Trump has become a big-spending president. Period. No if, ands, buts, or “on the other hands.”
Let’s look for instance at the fact that during his first term spending increased by 21 percent, or $850 billion. Adjusted for inflation, that’s 17.5 percent or 4.3 percent annually. This first-term annual spending rate increased more than any other president other than Lyndon B. Johnson and George W. Bush. Adding insult to injury, the president does not have an excuse he can spin such “the economy is in recession” or “we just got involved in a new war.”
The bottom line is that there is nothing historic about this budget, or these cuts. When we look at it in the cold light of reality, it is just the same big spending, unbelievable assumptions, and fiscal irresponsibility that have, dismayingly, become commonplace.
Made available by the American Institute for Economic Research.
