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Trump and His Budget Aren’t on the Same Page

The budget that President Trump released this week is a model of mainstream Republican orthodoxy. It asks for more defense money to fend off “rival nation-states” like China and Russia and support allies while decrying “a bloated federal government with duplicative programs and wasteful spending.”

Like a traditional fiscal hawk, it sternly warns that mounting debt and deficits are “a serious threat to America’s prosperity” that will “crowd out more productive investments.” The solution: changes to entitlement programs long pushed by conservative policy wonks, such as work requirements.

In short, as a statement of small-c conservative principles, it is utterly unsurprising, except for this: Mr. Trump isn’t a small c-conservative. In words and deeds he has seldom shown the concern over debt, deficits or government spending that his budget does. “Who the hell cares about the budget? We’re going to have a country,” he reportedly told donors last month, according to the Washington Post.

Federal debt and spending rated no mention in this month’s State of the Union address. The president’s Twitter feed brims with complaints about the trade deficit — none about the budget deficit.

The White House expects that this fiscal year, the budget deficit will top $1 trillion, almost double the deficit in Barack Obama’s last year in office. The cause is both the tax cuts Mr. Trump championed and government spending he agreed to: It will reach 21.6% of gross domestic product this year, the highest since 2012.

Republicans in Congress kept a tight lid on spending in Mr. Obama’s last six years as president. Since Mr. Trump took office, the lid has come off. Republicans and Democrats agreed in early 2018 to lift caps on discretionary spending (the sort that must be appropriated each year, such as for defense and government operations) and Mr. Trump went along.

Last year, a standoff between Democrats in Congress and Mr. Trump led the government to shut down, because Mr. Trump wanted more spending — for a wall on the southern border. Mr. Trump lost that showdown but then funded the wall anyway with money Congress had appropriated for other purposes. (Democrats sued him for violating the Constitution’s prohibition on spending unappropriated money.)

Mr. Trump has occasionally taken up the cause of fiscal discipline. Shortly after agreeing to lift spending caps in 2018, he asked Congress to cancel some of that spending, a practice called “rescission,” which had fallen into disuse. Congress said no. He has threatened to veto some spending bills but hasn’t yet had to use it.

Politically, Mr. Trump has benefited from the upswing in federal spending. From 2011 through 2014, inflation-adjusted federal spending (excluding transfers like Social Security and interest on the debt) fell almost continuously, a significant drag on Mr. Obama’s economic record. By contrast, it was up 4.3% in the fourth quarter of last year from a year earlier, contributing to the strong economy on which Mr. Trump plans to run for re-election.

Administration officials defend Mr. Trump’s record by saying his first term was focused on reviving growth and he agreed to higher domestic spending to get more military funds; his budget is a blueprint for his second term.

Some of that blueprint must be taken with a grain of salt. To balance the budget in 15 years it relies on questionable assumptions: annual economic growth averaging 2.9% — a percentage point faster than private forecasters see — and $4.4 trillion in spending cuts and savings over a decade, many of which are too vague to evaluate.

Yet it also has substantive proposals with the potential to save real money. For example, Medicare pays many doctors who work for hospitals more than doctors who don’t. The budget proposes equalizing those payments. It also proposes simplifying and reducing payments to acute-care providers such as skilled nursing facilities. None of these is particularly conservative: formerPresident Obama had similar ideas in his budgets. The Committee for a Responsible Federal Budget, a watchdog group, predicts they could lower premiums, out-of-pocket medical costs, and state and local health-care spending.

The budget also projects big savings to safety-net programs. Recipients of welfare, food stamps and Medicaid would all face new restrictions and encouragements to work or do community service. The administration has already used its regulatory authority to let states experiment with work requirements. Social Security’s disability insurance program is widely seen as depressing labor-force participation. The budget proposes numerous changes aimed at encouraging beneficiaries to work and eventually leave the program.

Changes to entitlements such as Medicaid, Medicare, Social Security and food stamps are always controversial. Just as Republicans relentlessly attacked Mr. Obama for cutting Medicare provider payments, Democrats are ripping Mr. Trump for proposing the same. Work requirements will trigger a fierce battle between advocates who think they encourage independence and critics who fear they hurt the poor. It will require a hefty political investment in pursuit of a lower deficit, about which neither voters, the markets or Mr. Trump have shown much concern.
Source: Dow Jones

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