Foundation

Budget Realities Await President-Elect Trump

by Spencer Woody / /

Donald Trump managed to pull off one of the greatest presidential upsets in United States history. When Trump descended the escalators at Trump Tower to announce his candidacy, few thought that 18 months later he would actually be declared President-elect.

At some point, the celebration must stop. The champagne must stop flowing and euphoria must give way to sober-minded governance.

Although Trump is uniquely positioned to be the first Republican President to have a Republican controlled House and Senate in nearly a decade, this is not a guarantee that good policies will be enacted easily. The new President will need to reach across the aisle, particularly in the Senate, to usher his plans into law. There are additional fiscal challenges pertaining to the costs of his agenda, as well as external budget realities that must be understood and addressed by Trump and the next Congress.

Throughout Trump’s campaign NTUF tracked and scored the cost of every proposal he made. His policies would increase federal spending by $136 billion per year and decrease spending by only $116 billion per year, leaving a net annual average of $20 billion in spending increases. Nevertheless, to his credit, Trump partially listened to NTUF’s research on the benefits of the Penny Plan and adopted a restricted version that would cut one cent for each dollar spent for all federal spending except military spending and safety net entitlement programs.

Trump and his advisors are bullish that his tax plan will stimulate economic growth that pump revenues into the Treasury. However, more targeted spending cuts will be necessary if Trump is going to tackle the $19.8 trillion debt and the $534 billion deficit. Moreover, the Congressional Budget Office stated that although tax receipts will increase as a share of the economy in coming years, they will be outpaced by federal spending. Without changes to current spending habits, the federal government will be racking up over $1 trillion deficits in every year after 2021. Reining in federal spending begins by addressing entitlement spending programs, like Social Security and Medicare, which grow faster than any other programs and when coupled with interest on the debt consumes over half of the federal budget.

As entitlement spending consumes a larger portion of the federal budget, this begins to squeeze out funding available for discretionary programs such as the military, transportation, and immigration, all of which Trump promised to bolster. If Trump and Congress are going to address the government’s long-term fiscal imbalances without raising taxes, they will need to reform mandatory programs.

On the campaign trail, Trump promised not to touch Social Security and offered few specific plans on Medicare or Medicaid. Leaders in Congress, like Speaker Paul Ryan and Senator Marco Rubio, who have been advocates and crafters of entitlement reform, will need to press this issue to President Trump and offer guidance and advice.

Uncontrolled budget deficits and national debt constrain policymakers’ ability to react to emergencies, and also hurt the economy in general. A growing and unaddressed national debt leads to higher inflation and fewer private investments, both of which hinder economic growth, employment opportunities, and the ability for entrepreneurs to try new creative approaches to provide goods and services. Overall, the national debt and federal spending must be addressed if the economy and jobs are going to grow at the rate Trump promised (25 million jobs over the next decade and a 3.5% GDP growth per year).

Trump presented a detailed tax reform plan based largely on the GOP’s “Better Way” plan, but this only address one side of the fiscal coin. If he fails to address the spending side as well, he will exacerbate the fiscal gap. President-elect Trump has proposed some targeted spending reductions, but they do not fully offset his spending. He should be guided by his advisors to couple his tax cuts with entitlement reform and discretionary spending cuts.

Many of these budget problems are long-term challenges, but others will be waiting to greet President Trump within his first 100 days in office. In 2015, Congress passed the Bipartisan Budget Act, which suspended the debt ceiling until March 15, 2017. Addressing the debt ceiling will be the first fiscal test for him and the new Congress. Trump should use this opportunity to work with Congress to set the budget on a sustainable path.

Once the party stops and Trump is sworn into the Presidency, the real challenge starts. The election was the easy part. The difficult part is addressing out-of-control spending. If Trump is going to “Make America Great Again,” it starts with tackling and reining in Washington’s spending problem.

 

President-elect Trump and Congress can find a number of areas to cut federal spending in National Taxpayers Union Foundation and United States Public Research Interest Group’s upcoming bipartisan CommonGround report, which will be released early next year.


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