…..Trump budget proposal includes big increases in defense spending and big cuts to social programs. Based on 3% GDP growth. Hits Social Security and Medicaid. Let the budget battles begin.
Financial Review by Sinclair Noe for 05-23-2017
DOW + 43 = 20,937
SPX + 4 = 2398
NAS + 5 = 6138
RUT + 3 = 1380
10 Y + .03 = 2.28%
OIL + .36 = 51.49
GOLD – 9.70 = 1251.70
In the morning, U.S. economic data showed new single-family home sales in April tumbled from near a nine-and-a-half-year high, while manufacturing activity for May fell to the lowest level since September. While the President is on an overseas trip, stocks were helped by a lack of major news updates related to the government probe on possible ties between his election campaign and Russia. While today’s economic data was weak, investors were relieved Trump’s first full budget plan was largely as expected, even if it is not expected to be approved in Congress.
The Trump Budget was published today. Its official title is “A New Foundation for American Greatness” and it includes big changes to the role of the federal government. It would cut or eliminate numerous programs that the White House says are a waste of money or create too much dependency.
Some of these programs — including Medicaid and food stamps — provide benefits to up to a fifth of all Americans. The $4.09 trillion budget proposal for the fiscal year that begins in October, is the first detailed blueprint for how Trump wants the government to change. White House Office of Management and Budget Director Mick Mulvaney called the plan a “Taxpayer First Budget,” and he said they worked to jettison any spending that they felt they could not defend. In total, this meant roughly $3.6 trillion in cuts over the next 10 years.
The Trump budget team made rosy assumptions about economic growth that many economists — both conservative and liberal — said went too far. Trump has proposed cutting the corporate tax rate from 35 percent to 15 percent, but his budget assumes that corporate tax receipts will increase almost every year. The budget says the U.S. government will collect $328 billion in estate and gift taxes over the next decade, but it also says Trump will eliminate the estate tax. The budget assumes its policies will kickstart an era of 3% GDP growth by 2021. The Congressional Budget Office assumes the U.S. can grow at 1.9%, and professional forecasters see, as measured by the Blue Chip survey, see just 2.1% GDP growth. According to analysis from a Committee for a Responsible Federal Budget, there is no plausible path to 4% growth, and 3% growth is “unlikely.”
It would require exceeding the record levels of productivity set between 1959 and 1968 or restoring capital growth, productivity growth, and labor-force participation to the levels achieved in the booming 1990s. The independent Tax Policy Center estimated that Trump’s campaign tax plan would add $7.2 trillion to the deficit. Whether realistic or not, higher growth estimates allow the Trump administration to project that the government will collect more revenues from taxpayers and spend less on safety-net programs, offsetting the costs of the president’s wish list to hold deficits down.
The budget would provide $574 billion for the Pentagon, a 10 percent increase from the last full-year budget in fiscal 2016 and about 9.5 percent more than the budget Congress approved for the current fiscal year. Trump’s proposal would exceed the military spending caps under the 2011 Budget Control Act by $52 billion. The president would reduce nearly a third of funding for diplomacy and foreign aid including global health and food aid, peacekeeping and other forms of non-military foreign involvement. Also, spending more than $2.6 billion for border security, including $1.6 billion to begin work on a wall on the border between Mexico and the US, or at least between Naco and Agua Prieta.
While the Pentagon’s budget would see a $6 billion increase, the push for more high-priced weapons — including fulfilling Trump’s pledge to increase the Navy fleet to 350 ships from 275 that can be deployed today — will wait another year. He’s also proposing cutting funding for the State Department by more than 28 percent. The budget also makes use of several other classic accounting gimmicks. It assumes that the wars in Afghanistan and the Middle East will cause future Congresses to allocate $593 billion in extra war funding that won’t be needed and then claims to save that amount by not spending it.
On the campaign trail, Trump said, “I’m not going to cut Social Security like every other Republican, and I’m not going to cut Medicare or Medicaid.” In his fiscal 2018 budget proposal, Trump asked Congress for $3.6 trillion in spending cuts that would mean steep reductions in Medicaid health insurance payments, Social Security disability benefits, food stamps, low-income housing assistance and block grants that fund meals-on-wheels for the elderly.
Funding for Medicaid, the health-care program for low-income Americans and many people in nursing homes, and CHIP, the Children’s Health Insurance Program, would be cut by $880 billion over 10 years. Funding for SNAP, the Supplemental Nutrition Assistance Program, a modern version of food stamps that provided benefits to 44 million people in 2016, would be cut 29 percent. In many cases, a higher burden of paying for anti-poverty programs would be shifted away from the federal government and onto the states.
The budget would cut payments to disabled workers by $72 billion over the next 10 years, or about $7.2 billion a year. That represents 5% of the disability benefits the government doled out in 2016. The disability insurance fund was created in 1956 in a series of amendments to beef up Social Security. Social Security retirement benefits and Social Security Disability are all part of a single Social Security safety net designed to ensure that American workers can live with dignity when they retire or if they become too disabled to get gainful employment. Far from a separate program, Social Security Disability Insurance is a protection available to all Americans, and is paid for through the same Social Security payroll taxes that pay for retirement benefits.
The budget also calls for cuts to the National Institute for Health, the Centers for Disease Control and Prevention, the Food and Drug Administration, and Planned Parenthood. The Environmental Protection Agency, as expected based on prior budget proposal drafts, is set to lose 31% of its current budget, which amounts to a $2.7 billion cut. That will likely hinder the agency’s ability to enforce environmental laws, impede its tap water safety programs, and eliminate its Climate Protection Program, among other changes. State and tribal assistance grants would be slashed from $1.08 billion to $597 million, or 45%. Those grants pay for states to carry out a number of federal directives such as toxic substance compliance, pesticides enforcement and brownfield inspections. Some of those categories have been zeroed out entirely, including beach protection, radon monitoring and lead testing.
The White House plan to trim the national debt includes selling off half of the nation’s emergency oil stockpile and the entire backup gasoline supply; a move that would raise $500 million in fiscal year 2018 — and as much $16.6 billion over the next decade — by drawing down the Strategic Petroleum Reserve. The budget projects raising $1.8 billion over the next decade by opening up the 19-million-acre Arctic National Wildlife Refuge to oil and gas development. The idea of allowing drilling in the refuge for its estimated 12 billion barrels of crude has long been championed by Alaska Republicans. But it’s anathema to environmentalists, who have successfully blocked ANWR drilling plans from advancing.
The plan includes changes to a few popular student loan programs – cutting back on the number of loan repayment options; eliminating the program that allows some workers in public service jobs to have their debts waived; and changes to Pell Grants, federal grant issued based on financial need. These proposals would apply to loans that were issued on or after July 1, 2018. They would not apply to loans issued after July 1, 2018, if those loans are used to finish the borrowers’ current course of study. In other words, a college junior in seeking a loan on July 1, 2018, to finish her bachelor’s would not be subject to these proposals.
The proposed budget estimates that the federal government could save $35 billion over the next decade by rolling back regulations governing Wall Street. The White House does not detail how those savings would be realized. But the administration said an ongoing review of existing financial rules “will likely result in proposals that will provide significant savings to the federal government.” Treasury Secretary Steven Mnuchin is currently conducting a comprehensive review of the impact of the 2010 Dodd-Frank financial reform legislation. An initial report recommending policy changes is expected to come at the beginning of June.
Fiscally and socially, the Trump proposal is a reverse Robin Hood. Cuts in domestic programs to fund big military-spending hikes would disproportionately hit the poor. Tax cuts would primarily benefit the affluent. The Library of Congress is filled with budget proposals that presidents sent to Capitol Hill and never saw again in the form of legislation. Even with a House and Senate controlled by fellow Republicans, Trump’s plans could face the same fate. Congress usually starts its drafting process each year with the existing budget and makes additions or subtractions from that. If it keeps to that practice, it will be starting with a plan that passed with bipartisan support earlier this month, one Democrats believe many Republicans would not mind sticking to for another year. Remember that Congress has a difficult time passing any budget. Today’s White House proposal likely deepens the divide.