Promoting freedom, innovation, and growth

Connect with IPI

Receive news, research, and updates

January 24, 2017

Trump Needs to Cut $10 Trillion in Federal Spending

 

The Hill suggests that President Donald Trump’s effort to cut federal spending is being guided by a Heritage Foundation proposal that cuts $10 trillion in federal spending over 10 years. 

Trump will need every penny of it. 

The federal government says that in 2016 it collected $2.99 trillion in revenue, but was expected to spend about $3.5 trillion—a shortfall of $500 billion. 

Now, annual deficits are projected to rise, but if we extrapolate the current deficit for 10 years, that’s $5 trillion. 

Thus, Trump would need to cut federal spending by some $5 trillion just to balance the budget. 

But Trump wants tax reform that will lower the corporate rate and cut taxes for middle-income workers. The first iteration of Trump’s tax reform would have cost the federal government $10 trillion over 10 years, according to the Tax Foundation

But his economic advisors made some changes to his original plan, cutting the estimated revenue loss to between $4.4 trillion to $5.9 trillion under static scoring, again according to the Tax Foundation. 

However, IPI believes dynamic scoring more accurately reflects how humans behave to tax policy changes. Following that approach, the Tax Foundation estimates the revenue loss at between $2.6 trillion and $3.9 trillion over 10 years. 

So if Trump wants to balance the budget AND pass his tax reform bill, he will need to cut federal spending between $7.5 trillion and $9 trillion, which would bring him just under Heritage’s proposed spending cuts. And that doesn’t include his proposed $1 trillion in infrastructure spending. 

Cutting close to $1 trillion a year is a huge leap, given the federal government’s current $3.5 trillion budget. Only $1.1 trillion is considered discretionary spending; the other $2.44 is considered mandatory.  

But mandatory spending includes lots of items that can and should be cut, including federal spending on education and health care, which includes all of the Obamacare subsidies and Medicaid expansion. 

It won’t be easy, to say the least. But if President Trump can cut taxes and cut federal spending enough to balance the budget, even with the tax cuts, he will take a big step toward reaching his goal of growing the economy at 4 percent or more.


 

  • TaxBytes-New

Copyright Institute for Policy Innovation 2017. All Rights Reserved Privacy Policy Contact IPI.

e-resources e-resources