Douglas Holtz-Eakin: Trump budget plan has taken heat for vast spending cuts, particularly to Medicaid, and assumptions about revenue and growth.
He says the plan is not all bad: it strongly recognizes the need for better growth, and deserves credit for proposing a serious Medicaid reform
Editor’s Note: Douglas Holtz-Eakin is the president of the American Action Forum. He is a former director of the Congressional Budget Office and former chief economist of the President’s Council of Economic Advisers under President George W. Bush. He was the top economic adviser to Sen. John McCain’s 2008 presidential campaign. The opinions expressed in this commentary are solely those of the author.
The Trump administration’s budget has met withering criticism for its vast spending cuts, particularly to Medicaid, and for its assumptions about revenue and growth.
Is it really all that bad?
The U.S. faces serious fiscal problems. The economy is now projected to creep along at a bit less than 2% annual growth. Spending and revenues remain dangerously out of whack because of rising entitlement spending. This threatens to steadily crowd out discretionary spending on national security, basic research, education, infrastructure — the things the Founders saw as the actual responsibilities of government.
Viewed from this perspective, the budget deserves mixed reviews, but not disdainful dismissal. It strongly recognizes the need for better growth, and assumes the average growth rate will rise from 1.9% annually to 2.9% over the next decade.
Is that aggressive? Yes, but every president’s budget is aggressive. It would require that everything – tax reform, regulatory reform, infrastructure, education reform and more – be enacted and work exactly as predicted. But that’s how every president’s budget is formulated. If Trump’s budget is right, it would be an enormous improvement in the economy, but more importantly in the lives of every American.
The fuss over the revenue seems misplaced. The budget has few specifics, but at the top line it shows that nominal gross domestic product averages growth of 5% per year over the budget window and revenues average 5.2%.
By comparison, in the Congressional Budget Office baseline, the corresponding growth rates are 3.9 % and 4.2%. The administration has boosted its estimates by roughly a percentage point, with correspondingly faster revenue growth. By the standards of most presidents’ budgets, this is a misdemeanor at best.
Turning to controlling the entitlement-spending explosion, Trump deserves credit for proposing a serious Medicaid reform. Critics may not like the particulars, but nobody should argue with a straight face that the status quo is acceptable and reform per se is a bad idea. So, kudos to him.
In the other direction, the budget takes Social Security and Medicare off the table. This sends the message that these programs are fine; they are not. Neither program will be financially sustainable over the long-term and seniors deserve programs they can count on and, in the case of Medicare, deliver the highest value of health care. These programs should be in the reform mix.
The demerits in the budget belong with the annual discretionary accounts. The budget simply accelerates an already unappealing trend. There will be too few resources to fund the national defense needs that experts have identified and, for example, 18% cuts in the National Institutes of Health go the wrong direction on basic research. This is not to say that every non-defense discretionary program is perfect. They are not. In particular, the anti-poverty programs have failed to produce economic self-sufficiency among their beneficiaries and, as a result, have not “solved” the poverty program.
But these programs should be critiqued, better alternatives developed and the budgetary costs of the improved programs incorporated into the discretionary totals. That is, change the programs on their merits. The 2018 budget sends the message that they are being cut simply in order to reach balance. It invites the portrayal of an administration callously indifferent to the quality of the programs for lower-income Americans.
The 2018 budget does not get straight A’s, but it is a far cry from the complete failure that critics have claimed.