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May 25, 2017

Trump's Toxic Budget Is a Cheap Win for the Right People

IPI expert referenced: Tom Giovanetti | In The News | Media Hit
  Bloomberg Business

By Peter Coy

The most common reaction to the austere budget released by the Trump administration on May 23 is that it can’t possibly get past Congress. President Donald Trump himself may be fine with that. In its current form, his budget looks more like a sop to the far-right wing of the Republican Party—cheap currency to buy the goodwill of a crucial part of his base.

Trump has already scored a meaningful political victory—meaningful to him, at least—by eliciting the right responses from the right people. Americans for Limited Government praised the plan as “sober,” while former Treasury Secretary Larry Summers, a Democrat, called it “simply ludicrous.”

Budget Director Mick Mulvaney, a founding member of the House’s conservative Freedom Caucus, brags the plan would wipe out the entire budget deficit and produce a small surplus by 2027, even while spending more on the military and border control and protecting Medicare and the retirement portion of Social Security. That requires leaps of faith both economic and political.

Economically, the proposal assumes 3 percent average annual growth beginning in 2020—way above the 1.8 percent average predicted by the nonpartisan Congressional Budget Office—partly fueled by tax cuts. Until now, the administration had been saying extra growth would simply offset revenue losses from lower tax rates. Now it’s claiming the tax plan itself will be revenue-neutral and the growth it stimulates will produce more tax revenue to close deficits.

Politically, the plan whacks a hornet’s nest by cutting Medicaid, food stamps, Social Security disability payments, student loans, farm subsidies, and federal employee benefits. It also includes a “two-penny plan” that cuts an additional 2¢ each year from every $1 of nondefense discretionary spending, i.e., everything from federal courts to the Department of State to the Environmental Protection Agency.

Among those most harmed by the budget cuts would be a lot of people who voted for Trump. “If the Trump budget were to be implemented as he’s proposed it, there would be a sense of betrayal in Trumpland that would be extraordinary,” says Stan Collender, executive vice president of Qorvis MSLGroup, a Washington-based communications firm.

Fortunately for Trump, hishis budget doesn’t stand a chance on Capitol Hill. And not just because of Democrats. “We know the president’s budget isn’t going to be passed as it is,” John Cornyn of Texas, the No. 2 Senate Republican, told reporters. North Carolina Representative Mark Meadows, chairman of the Freedom Caucus, which favors deep spending cuts, told the New York Times, “Meals on Wheels, even for some of us who are considered to be fiscal hawks, may be a bridge too far.”


The big picture is this: Trump can afford to use his first budget as a purely political document, because Congress, not the White House, is in charge of taxing and spending. That’s always been true, but it matters even more today, because Trump’s ability to lead has been diminished by his own erratic personality, a handful of unforced errors, plus multiple investigations into possible Russian meddling in the presidential election. Never has the old saw, “the president proposes, Congress disposes,” been more accurate.

GOP congressional leaders know they’ll be judged harshly by history—and midterm election voters—if they fail to pass important legislation while their party controls both the White House and Congress. Republicans’ majority in the House is just off the high the party reached in the 2014 election, which was the most since 1947. But the time for action is running out, with breaks for Memorial Day, Independence Day, and the monthlong August recess looming, a new fiscal year beginning on Oct. 1, and the debt ceiling expected to be hit sometime in the fall.

The GOP faces a tricky legislative schedule: To pass a tax cut in the Senate without Democratic votes, Republicans need to use a budget procedure known as reconciliation. To do that, they first need both chambers to pass a 2018 budget resolution. And before doing that, they must wrap up the American Health Care Act, which is being negotiated under terms of the 2017 budget resolution. Moderate Republicans in the Senate, such as Bill Cassidy of Louisiana, are balking at the House version of the AHCA.

Senate Majority Leader Mitch McConnell is meeting with his colleagues about health care behind closed doors, knowing that a public hearing would throw a spotlight on opponents’ objections and hoping, perhaps, that the pressure to act will spur most Republicans to fall in line. “The logic of Republicans’ feeling like they need to get this done is probably enough to get it over the finish line,” says Jon Lieber of the consulting firm Eurasia Group Ltd. (On May 24 the CBO said the House-passed bill would cut deficits by $119 billion over 10 years, $32 billion less than the defeated version.)

A tax cut would be comparatively easy. Trump’s one-page tax plan is skewed toward the wealthy, which chafes Democrats. A compromise that shifts cuts toward the middle class could probably get through both chambers of Congress. The casualty would likely be the federal budget deficit. Speaker Paul Ryan has insisted that any tax package must keep deficits from growing, but he acknowledged on May 24 that his favored way to raise revenue, a border-adjusted tax, is being resisted by the White House.

A tax compromise that Trump could claim credit for isn’t hard to imagine. Business would be pleased. “A quarter of a loaf is better than none,” says Tom Giovanetti, president of the center-right Institute for Policy Innovation in Irving, Texas.

In short, we aren’t living in a world where Trump’s budget is setting the agenda for change. And that’s why the Democrats’ brave talk about the budget being “dead on arrival” is empty. It’s like declaring a piñata dead on arrival: The thing is designed to be smashed apart. For Trump, appearances matter, and the appearance he’s trying to convey is that he can out-Reagan Reagan. Says Stephen Myrow, managing partner of Beacon Policy Advisors LLC: “He isn’t trying to make a difference with the budget; he’s trying to make a point.”


The bottom line: Trump’s budget is so politically toxic that Congress won’t come close to passing it, which is exactly what the president wants.



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