Administration’s Budget Reins In Spending, Predicts Enhanced GDP Growth

The President’s Budget for Fiscal Year 2018 outlined an ambitious pro-growth agenda—addressing discretionary as well as entitlement spending. The $4.1 trillion budget for fiscal year 2018 is a slight increase over the $4.065 trillion in outlays currently estimated for fiscal year 2017, but includes significant prioritized reductions over the next decade relative to the current baseline. On this trajectory, not only would the federal budget balance within ten years if White House economic growth and revenue projections are met, but federal debt would fall to 60 percent of gross domestic product (GDP) from 104.7 percent currently. This relatively smaller debt load would result in more capital flowing towards business develop rather than funding government expenditures—a boon to economic growth.

The majority of programs and departments will have fewer dollars to work with under the plan, but the steepest reductions come from areas most marred by inefficiency, excess and cronyism. Among entitlements, the most dramatic reforms will be made to Medicaid, food stamps, Social Security disability and student loan programs. Overall spending would fall by $4.5 trillion over the next decade relative to baseline, with a majority of cuts coming from the so-called “third rail” of entitlement spending. However it should be noted, that this represents roughly just a 9 percent overall reduction over ten years from the current baseline. In addition, federal spending still increases from $4.072 trillion to $5.708 trillion over this period.

The plan promises $250 billion in savings over ten years by repealing and replacing the Affordable Care Act. It achieves another $616 billion in savings this decade through reforms to Medicaid and the Children’s Health Insurance program. Returning power to the states and giving a choice between a per-capita cap or block grant funding, the plan incentivizes states to prioritize dollars to where they are most effective, as well as to innovate in structuring their programs to best allocate those scarce resources.

Better yet, the budget seeks to encourage Americans to get back into the workforce through reforms to welfare. Contrary to screeches of food stamps being ripped away, the budget would merely require able-bodied individuals to work in order to participate in the Supplemental Nutrition Assistance Program, also known as food stamps. These changes will save taxpayers $193 billion over ten years.

By strengthening welfare eligibility requirements and restructuring the Earned Income Tax Credit and Child Tax Credit, the plan would save $40 billion in taxpayer dollars over a decade. Curtailing waste, fraud and abuse helps ensure that federal resources are expended on those truly in need. Likewise, renewed efforts to reduce improper government payments is expected to cut wrongful payments by half.

The administration relies on stronger economic growth of 3 percent per year to balance the budget in this timeframe—far exceeding the under 2 percent annual growth since the end of the Great Recession. On a ten year rolling average basis, national GDP exceeded 3 percent annually in each rolling ten-year period all but twice from 1956 through 2007.

In addition, economic growth over the past decade in states embracing similar tax and fiscal policies suggest such growth assumptions are not unreasonable. Take North Carolina: in the years following a tax relief and spending reduction agenda that will have returned over $6 billion to the productive sector by 2020, the state has outpaced nearly every competitor in the nation in terms of economic growth, with 17.03 percent GDP growth between 2013 and 2016. This is a story that has played out in countless other states—Florida, Texas, Indiana and Tennessee, just to name a few. Over the same period, Florida’s GDP grew by 19.79 percent, Texas’ by 12.1 percent, and Indiana’s by 13.3 percent.

By taking on entitlements, the President’s proposal is a significant alteration of course from the status quo of failing to address the primary driver behind the long-term structural deficit. This plan could be the clarion call to lawmakers to be less fearful of touching this so-called “third rail.”

Critics may disparage the plan as a war on the poor. But as Mick Mulvaney, Director of the Office of Management and Budget, importantly noted, “we are no longer going to measure compassion by the number of programs and the number of people on those programs. We’re going to measure compassion and success by the number of people we helped get off those programs and get back in charge of their own lives.”

This blueprint offers hope of a return to fiscal sanity after decades of irresponsibility in both discretionary and mandatory spending. At the very least, the president’s budget will fuel substantive discussions on reforms to programs currently deemed too politically difficult to handle.