March 12, 2017
By: Damian Paletta
President Trump’s budget proposal this week would shake the federal government to its core if enacted, culling back numerous programs and expediting a historic contraction of the federal workforce.
This would be the first time the government has executed cuts of this magnitude — and all at once — since the drawdown following World War II, economists and budget analysts said.
The spending budget Trump is set to release Thursday will offer the clearest snapshot of his vision for the size and role of government. Aides say that the president sees a new Washington emerging from the budget process, one that prioritizes the military and homeland security while slashing many other areas, including housing, foreign assistance, environmental programs, public broadcasting and research. Simply put, government would be smaller and less involved in regulating life in America, with private companies and states playing a much bigger role.
The cuts Trump plans to propose this week are also expected to lead to layoffs among federal workers, changes that would be felt sharply in the Washington area. According to an economic analysis by Mark Zandi, chief economist for Moody’s Analytics, the reductions outlined so far by Trump’s advisers would reduce employment in the region by 1.8 percent and personal income by 3.5 percent, and lower home prices by 1.9 percent.
“These are not the kind of cuts that you can accommodate by tightening the belt one notch, by shaving a little bit off of a program, or by downsizing a few staff here or there,” said Robert Reischauer, a former director of the Congressional Budget Office. “These are cuts that would require a wholesale triage of a vast array of federal activities.”
Still, budget experts said it was unclear what the precise impact on many agencies might be because the departments could choose to implement reductions in a variety of ways.
Administration officials have also stressed that discussions are ongoing between budget officials and agencies, and that the size of the budget cuts remains fluid. Moreover, the cuts cannot take effect unless they are authorized by Congress, which could prove difficult. Lawmakers routinely rebuffed budget requests from President Barack Obama, leading instead to protracted negotiations between both sides.
Already, Democrats have vowed to fight Trump’s proposals, and some Republicans have also expressed unease at the size of the reductions.
The White House declined to comment publicly, but administration officials have signaled for weeks that large cuts will be part of the budget.
“Unfortunately, we have no alternative but to reinvest in our military and make ourselves a military power once again,” National Economic Council Director Gary Cohn said on “Fox News Sunday.”
“If you’re doing that in an area where you have to balance the budget and you cannot create a further deficit, you have to make cuts. It’s no different than every other family in America that has to make the tough decisions when they need to spend money somewhere, they have to cut it from somewhere else.”
The federal government is projected to spend $4.091 trillion next year, with roughly two-thirds of that going mostly toward Social Security, Medicare, Medicaid, poverty assistance and interest payments on the government debt. This spending is expected to be left untouched in the budget proposal next week.
What Trump will propose changing is the rest of the budget, known as discretionary spending, which is authorized each year by Congress. Slightly more than half of this remaining money goes to the military, and the rest is spread across agencies that operate things like education, diplomacy, housing, transportation and law enforcement.
Among Trump’s expected proposals are an increase in military spending of $54 billion, more money to start building a wall along the border between the United States and Mexico, and the creation of new initiatives that expand access to charter schools and other educational programs.
To offset that new money, Trump will propose steep cuts across numerous other agencies. Although final numbers remain in flux, his advisers have considered cutting the Department of Housing and Urban Development’s budget by $6 billion, or 14 percent, according to a preliminary budget document obtained by The Washington Post. That is a change that Trulia chief economist Ralph McLaughlin said could “put nearly 8 million Americans in both inner-city and suburban communities at risk of losing their public housing and nearly 4 million at risk of losing their rental subsidy.”
Preliminary budget documents have also shown that Trump advisers have also looked at cutting the Environmental Protection Agency’s staff by about 20 percent and tightening the Commerce Department’s budget by about 18 percent, which would impact climate change research and weather satellite programs, among other things.
Trump and his advisers have said that they believe the federal workforce is too big, and that the federal government spends — and wastes — too much money. They have said that Washington — the federal workers and contractors, among others — has benefited from government largesse while many other Americans have suffered. Federal spending, they have argued, crowds the private sector and piles regulations and bureaucracy onto companies.
Trump’s chief strategist, Stephen K. Bannon, has said Trump will lead a “deconstruction of the administrative state.” On Friday, White House press secretary Sean Spicer said Obama loyalists had “burrowed into government.” Last month, Trump said the government would have to “do more with less.”
Trump’s proposal comes at a time when the federal budget is facing massive structural shifts in society and the economy. Aging baby boomers are swelling the number of Americans collecting Social Security and Medicare benefits, and the costs of these programs will continue to grow faster for more than a decade, budget experts said. In addition, the expected rise in borrowing rates and the growing national debt are expected to push interest payments on the debt from $270 billion this year to $768 billion in 2027, outpacing any growth in tax revenue.
The spending cuts Trump will propose Thursday will not impact any of these spending trajectories, though many conservatives have urged him to tackle these parts of the budget more comprehensively.
“It is his vision for the administration of the government,” said Doug Holtz-Eakin, another former CBO director. “But the big government that everyone decries,” he said, is in other programs that Trump is not proposing yet to cut.
Meanwhile, the aging federal workforce is moving more people toward retirement and into federal pension programs.
There are roughly 2.8 million federal employees, according to data from the Federal Reserve Bank of St. Louis, a number roughly flat over the past 20 years but lower than any point from 1974 to 1997. And roughly 34 percent of the federal employees who are not in the military will qualify for full retirement benefits in 2020.
Trump’s proposal is a continuation of a messy Washington fight about the size and scope of the federal budget, which has led to some changes in recent years but nothing as stark as what he will propose this week.
Federal spending grew and then contracted during the Obama administration. A combination of the recession, the American Recovery and Reinvestment Act of 2009 and other initiatives pushed federal spending to $3.5 trillion in 2010 and $3.6 trillion in 2011. Those annual spending levels, combined with a weak economic recovery, amounted to 23.5 percent of U.S. gross domestic product, the largest percentage since 1946.
But then the stimulus funds ended, the Obama administration and Congress agreed to install new budget caps and other spending waned. In 2017, spending as a share of GDP is expected to be 20.7 percent, more in line with historical trends.
But those budget caps are at the crux of Trump’s looming fight with Democrats. Many have insisted that they will only agree to increases in defense spending if other parts of the budget are increased as well.
Sen. Tim Kaine (D-Va.), who said that his state would be hit particularly hard by Trump’s proposed cuts, said that his party plans to remain locked in opposition to the disproportionate changes Trump will advance.
“The notion of bulking up defense but slashing everything else, that’s not going to find any votes on the Democratic side,” Kaine said in an interview.
Neither Trump nor any of his top advisers have assembled a White House budget before, posing a challenge for his team in how it sells it and for lawmakers from both parties as they decide whether to negotiate or block his proposed changes.
But former White House officials from both parties agree that the changes Trump proposes, if enacted, would dramatically change how the federal government functions and its role in American society.
Matthew Slaughter, dean of the Tuck School of Business at Dartmouth College and a member of the Council of Economic Advisers under President George W. Bush, said many of the cuts the Trump administration will propose would impact what he sees as investments in the United States’ future, such as health research, transportation projects and training programs.
“Imagine his plan got enacted,” Slaughter said. “It wouldn’t trigger some crisis, but what’s subtle is relative to what America could be in the next several years in terms of making more substantial investments in infrastructure, science research, and public investments that we have historically made.”
Mick Mulvaney, head of the Office of Management and Budget, said on Hugh Hewitt’s radio program last week that it was important for the administration to change how Washington thinks.
“We don’t solve problems by simply throwing money at them,” he said.