Policy

Trump Wants $800 Billion, 10-Year Cut in Entitlement Programs

Programs include Medicaid and Social Security Disability Insurance

Office of Management and Budget Director Mick Mulvaney speaks to the media about President Donald Trump's budget during a May 2 briefing at the White House. (Mark Wilson/Getty Images)

White House officials are crafting a fiscal 2018 budget proposal for President Donald Trump that aims to wipe out the deficit through a combination of robust economic growth, steep cuts in certain means-tested entitlement programs and other savings.

Trump would aim to balance the federal budget within 10 years. His plan relies on Congress passing a comprehensive tax overhaul and other policies, such as deregulation. The administration believes these approaches will jump-start the economy, causing economic growth to ramp up to 3 percent in the coming decade, people with knowledge of the plan said.

While the Trump budget request is not final and could be changed, these sources also said it would propose about $800 billion in cuts to projected spending in a wide array of means-tested, mandatory spending programs including Medicaid over 10 years. The proposed reductions in Medicaid would go beyond those in a House-passed health care overhaul. 

Trump is not expected to propose any major changes in Social Security or Medicare. He pledged not to cut these programs during the campaign. But sources said the budget will include proposals to reduce the cost of the Social Security Disability Insurance program, which is not means-tested.

It’s not clear which programs might be cut beyond Medicaid but means-tested mandatory spending programs include food stamps, Temporary Assistance for Needy Families, Supplemental Security Income, child nutrition programs and the Pell Grant program.

Proposed cuts to any of these programs would likely spark great controversy among advocates and pushback among Democrats already trying to capitalize on the health care bill.

The economic growth forecast in the Trump plan is considerably higher than what the Congressional Budget Office and private forecasters expect. In January, the CBO projected a much lower average, 1.9 percent growth in gross domestic product through 2027.

The CBO forecast, however, assumed no change in current laws. The White House forecast will assume enactment of all the proposals in the budget, which the administration believes would lead to more growth.

Stronger economic growth could help chip away at the deficit by raising an additional $2 trillion or more in tax revenue over a decade, according to some estimates.

In a White House briefing April 26, Treasury Secretary Steven Mnuchin told reporters that Trump’s economic plan “will grow the economy and will create massive amounts of revenues, trillions of dollars in additional revenues.”

White House Budget Director Mick Mulvaney said March 19 he was trying to balance the budget within 10 years. “It’s very difficult,” he told NBC’s “Meet the Press.” Since then, the White House has shared few details of the plan.

The Office of Management and Budget declined to comment on or confirm any of CQ Roll Call’s reporting.

Path to balance

Trump’s full fiscal 2018 budget, which is expected the week of May 22, would be the first spending plan from a president that charts a path toward balance since before Barack Obama was elected president in 2008. None of Obama’s budgets would have eliminated the deficit within the 10-year budget window.

Some lawmakers and budget experts have assumed Trump could not write a balanced budget, in part because he had vowed not to cut Social Security or Medicare — the largest drivers of spending growth. He had also promised to build a costly wall at the Mexican border, implement a $1 trillion infrastructure rebuilding program, and cut taxes.

The challenge of writing a budget that proposes specific policies to eliminate the deficit is further illustrated by the CBO’s projection that, assuming no change in current laws, the deficit would rise to $1.4 trillion by 2027, pushing the gross national debt up to $30 trillion.

Republicans on the House Budget Committee are working on a fiscal 2018 budget resolution that would balance by wresting about $8 trillion in savings over 10 years.

In March, the White House released an outline of its first-year discretionary budget. The proposal asked for a $54 billion increase in defense in fiscal 2018, offset by $54 billion in nondefense discretionary cuts.

The full budget will contain the president’s proposals to increase defense spending and reduce certain nondefense programs over the remainder of the 10 years, as well as his proposals for taxes and for the mandatory spending programs that account for two-thirds of spending. 

The proposed Medicaid cuts in the full budget would be in addition to the proposals to turn Medicaid into a block grant and give states more flexibility to run the program in a GOP health care bill, people with knowledge of the plan said. The House passed legislation to partly repeal and replace the 2010 health care law last week, and the Senate is working on its own version.

Other savings would come from a plan to reduce the hundreds of billions of dollars in improper payments made by government agencies, as well as finding and eliminating waste, fraud and abuse in multiple federal programs. On May 3, U.S. Comptroller General Gene L. Dodaro told the House Budget Committee that in fiscal 2016 alone, the federal government made an estimated $144 billion in improper payments.

The administration believes spending can be further reduced through an initiative that requires federal agencies to scrutinize their budgets for potential savings from improving efficiency and effectiveness, merging or eliminating agencies or programs, or ending activities that are better left to state or local government or the private sector.

As the deficit falls, the government also saves money as a result of less borrowing.

Macroeconomic analysis

A budget that cuts spending can benefit from a macroeconomic analysis that shows deficit reduction producing economic benefits. For example, the fiscal 2017 budget resolution written in 2016 by House Budget Chairman Tom Price, who is now secretary of Health and Human Services, gained more than $400 billion in additional deficit reduction from a CBO analysis that estimated the falling deficit envisioned under the plan and the repeal of the health care law would increase economic activity.

White House officials said Trump’s plan to cut tax rates, simplify the tax code and make changes to the way U.S. companies are taxed on overseas profits will pay for itself primarily through economic growth but also through eliminating deductions, credits and other tax breaks.

The projections of increased revenue will rely in part on dynamic scoring, a method of analysis that estimates how much the economy will grow as a result of legislation, and what amount of additional revenue will be produced by the economic expansion and then “feed back” into the federal budget.

The budget assumes the loss of about $1 trillion in revenue from repealing an array of taxes created by the 2010 health care law. That assumption could change if the Senate and House ultimately pass a bill that retains some of the taxes in the health care proposal.

First posted on CQ.com May 9, 2017, at 10:18 a.m.

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