The Trump administration has released its first full budget plan and it is indeed radical by Washington standards. For starters, it increases spending, but not as fast as the spendthrifts in D.C. would like. Naturally no one is happy.
Dan Mitchell, a scholar at the Cato Institute and a friend of mine, has written a piece at International Liberty on “The Five Most Important Takeaways from Trump’s Budget.” Here’s a summary of his five main points:
- First, the budget isn’t being cut. Indeed, Trump is proposing that federal spending increase from $4.06 trillion this year to $5.71 trillion in 2027.
- Second, government spending will grow by an average of almost 3.5 percent per year over the next 10 years.
- Third, because the private economy is projected to grow by an average of about 5 percent per year (in nominal terms), Trump’s budget complies with the Golden Rule of fiscal policy.
- Fourth, as I wrote yesterday, there is real Medicaid reform that will restore federalism and save money.
- Fifth, domestic discretionary spending will be curtailed.
Dan gets into greater detail and discusses the pros and cons of the budget here.
A Budget Surplus by 2027
According to the Trump administration, the budget will produce a surplus by 2027. That’s something Americans hear about every ten year budget projection. But this budget seems to take direct aim at actually rationalizing some of Washington’s spending. It states:
The President’s Budget proposes the following bold steps to spark faster economic growth, balance the budget within 10 years, and finance important new priorities.
Control Federal Spending. The first step is to bring Federal spending under control and return the Federal budget to balance within 10 years. Deficit spending has become an ingrained part of the culture in the Nation’s capital. It must end to avoid passing unsustainable levels of debt on to our children and grandchildren and causing serious economic damage. When debt levels keep increasing, more and more of the Nation’s resources are required to service that debt and are diverted away from Government services that citizens depend on. To help correct this and reach our budget goal in 10 years, the Budget includes $3.6 trillion in spending reductions over 10 years, the most ever proposed by any President in a Budget. By including the anticipated economic gains that will result from the President’s fiscal, economic, and regulatory policies, the deficit will be reduced by $5.6 trillion compared to the current fiscal path.
As a result, by the end of the 10-year budget window, when the budget reaches balance, publicly held debt will be reduced to 60 percent of GDP, the lowest level since 2010, when the economic policies of the last administration took effect. Under this plan, the debt will continue to fall both in nominal dollars and as a share of GDP beyond that point, putting us on a path to repay the debt in full within a few decades. Bringing the budget into surplus and reducing the level of debt sets up a virtuous cycle in which fewer tax dollars are needed to service the debt. This increases budget flexibility, in which the Government can pursue other needed priorities. Reduced Federal borrowing on the capital markets also frees up capital to flow to productivity-enhancing investments, leading to higher economic growth.
Read the entire budget plan here.
How Trump’s budget could help Americans
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