The fiscal year 2018 budget proposed by President Donald Trump reduces current spending by $4.3 trillion for social programs, and increases spending by $717 billion, principally by $470 billion for defense and $200 billion for infrastructure. (These numbers reflect 10-year impacts.) At the end of 10 years the budget would be balanced with a significant reduction in debt. But this is not an accurate portrayal of the budget situation.
Some facts. The budget plan does not recognize the impact of tax reductions ($5 trillion) previously endorsed by the president. Furthermore, the budget assumes economic growth of 3 percent, which most economists and the Congressional Budget Office (CBO) find implausible. This very aggressive assumption adds what I would term “fake deficit computations” of up to $3 trillion. And the budget assumes the Affordable Care Act is eliminated ($834 billion) per the legislation passed by the House but not acted on by the Senate — which most certainly will be quite different with less savings — if any.
Most of these budget assumptions are not reasonable or may never happen. Add these poor assumptions together and there is an increase in debt of approximately $9 trillion.
I favor modest increases in defense spending and much more spending for infrastructure, but the social program reductions are unnecessarily punitive to folks in need of assistance. In particular consider the impact on children, families, and the disabled and elderly via $610 billion in nationwide reductions to Medicaid; this is in addition to reductions from the presumed repeal and replacement of the ACA. Other major reductions impact programs for food stamps, rental assistance, job training, and substance-abuse prevention. The list is much longer but no use listing all; you get the point.
Do these reductions affect New Jersey? They sure do. In the governor’s budget now before the Legislature it is assumed the state will receive $15.5 billion in federal aid. Almost every program in the state budget will be affected, including funding for transportation, home energy assistance, education grants for children with disabilities, monies for the clean water revolving fund, and so forth. The health department is expecting to receive $150 million for the Supplemental Food program for Women, Infants and Children (WIC) — a program particularly singled out for reductions.
An especially vulnerable program is the $16 billion state Medicaid program for which the federal government is expected to pay $ 8 billion — 50 percent of the total cost. Any reduction in federal aid in this program has a double impact on the total program. With the proposed reductions in the basic Medicaid budget plus the elimination of the ACA, over 500,000 folks in New Jersey would no longer receive healthcare.
Do not despair. Help is on the way for those interested in a more realistic and humane budget. The president’s budget is about his priorities and philosophy — more tax cuts for the rich, substantially more dollars for defense, and less money for needy folks. But the budget process in the federal government is long, diffuse, and complex. The only numbers that count in the end are those approved by the 12 appropriation committees.
Some background and comparisons might help. In a typical state budget process the governor proposes, the Legislature reviews and makes changes and approves a single appropriation act that the governor signs into law. He or she also can line-item veto any appropriation (the New Jersey governor has the most extensive line-item veto power in the country). In most states the governor’s budget is the guideline and the document that is paramount.
The federal government’s budget process is much more convoluted and limits what the president can do, especially at the end; he has no line-item veto power. In the federal government Congress is dominant, not the president. Permit me to summarize as briefly as I can; otherwise, the details of the process would take a tome to explain:
Step 1: The president’s budget is submitted to Congress, which refers it to the budget committees in the Senate and House.
Step 2: The budget committees (they have to agree) develop a budget resolution intended to serve as the principal budget guidance to the 12 appropriation committees, who develop the detailed spending bill. The budget resolution has many components, including: revenue estimates, projected spending for all programs, resulting surplus/deficit; and in some cases, “reconciliation” instructions relating to mandatory programs and taxes.
Step 3: The full Congress approves the budget resolution.
Step 4: The budget resolution provides a fixed dollar allocation to the chairperson of the appropriation committees. This serves as guidance for all discretionary program appropriations,
Step 5: The appropriation committee chairs then allocate budget numbers to each of the 12 subcommittees that are charged with developing the individual spending bills for each department of the government. (The appropriation committees may disregard the instructions from the budget committee — and usually do, including changing the allocations.)
Step 6: Each appropriation bill is developed and reconciled between the two committees.
Step 7: Each appropriation bill is approved by the full Congress.
Step 8: Finally, each of the 12 approved appropriation bills are sent to the president for approval. The president has no line-item veto power: He either approves or disapproves.
What do you think the chances are that the president’s proposal will be approved as submitted? My guess is “zero.” The real power entities in the federal budget process are the appropriation committees in each House of Congress. And many of these folks —though not all — generally like and understand the need for the programs they oversee. In many cases they develop appropriations without waiting for guidance from the budget committees, which usually cannot agree. What a confusing process.
My educated guess is that Democrats and enough Republicans on the appropriation committees will compromise, make some marginal reductions — but nowhere near what has been proposed by the president. Further, I think the president will sign each bill as submitted — and then complain that his budget, which would have eliminated the deficit, has been ignored.
Three final observations:
Tax-reform proposals will follow a different route and there will be considerable debate on the wisdom of various proposals. My guess is that there will be no solution till next year.
The Senate will make substantial changes to the House’s proposal for repeal of the ACA. Some changes will be made, but the Medicaid portion will be retained.
The basic drivers of the long-term federal budget problem are Social Security and Medicare — both of which will soon see shortages in revenues. If you add increasing defense spending into the equation it represents over 60 percent of all federal spending. None of this is mentioned in the president’s budget. My guess it will not be for the foreseeable future, but it needs to be.
Let’s see if I am correct on October 1, 2017.