One Nation, Ungovernable: Trump White House Releases Fiscal Year 2021 Federal Budget

There has not been a federal budget surplus since Bill Clinton was president.

Not long ago, President Trump’s New Foundation for American Greatnessbudget proposed to balance the books by 2027 by imputing an annual economic growth rate of three percent.

That optimistic growth rate didn’t materialize and sustain, yet it still undergirds the brand new White House 2021 Budget for America’s Future proposal. Only this time around, balance is to come in 15 years.

The new White House Budget for America’s Future proposes $4.829 trillion in outlays for fiscal year 2021, with annual spending projected to top $6 trillion by 2028.

The breakdown (Table S-4 Proposed Budget by Category, p. 112, $ in billions, as in Bezos) is:

1. Defense: $754
2. Non-defense discretionary: $722
3. Mandatory (Social Security, Medicare, Medicaid): $2,966
4. Interest: $378

Politicians regularly indulge in debate over how much extra an already-too-big federal government should spend on entitlement, military and discretionary categories that are each excessive.

There’s simply not enough cash to cover them all, so the FY 2021 deficit would be $966 billion (it’s already forecast at over $1 trillion this current fiscal year).

The new budget aims at dropping the deficit to $261 billion in 2030, and balancing things five years later (p. 7). Yeah, right. Speculative sustained economic growth of three percent per year would be driven presumably by tax policy changes, but also by continued regulatory liberalization. While I doubt the targets, this latter is important, perhaps under-appreciated.

Presidential budgets signal priorities to Congress, and it seems every American president’s fiscal budget gets declared DOA. Budgets are both ignored and attacked by Congress.

Lack of deficit and debt restraint — even with the benefit of a healthy economy and low interest rates — is a problem for stability and long-term economic health. The national debt now stands at $23.2 trillion, up more than $2 trillion since 2018. Keynesian rescue-by-deficit spending during some future recession becomes unavailable, since the truck’s already been unloaded.

To see why things are worrisome, consider the main competing projections on fiscal health.

Published at the end of January, the Congressional Budget Office’s January 2020 Budget and Economic Outlook, covering 2020 to 2030, predicts that discretionary, entitlement, and interest spending will rocket to nearly $7.5 trillion by 2030.

CBO projects a deficit over $1 trillion in 2023, and a shocking $1.4 trillion deficit by 2027; that’s a trillion more than the White House posits.

Yet even fiscal conservatives have lost the appetite for addressing deficits.

The lack of urgency extends to the president, who asked staff to look for big cuts in his second term. “Who the hell cares about the budget,” Trump reportedly proclaimed at a January 2020 fundraiser.

If this keeps up, more will be spent on debt service than on the entire defense budget, particularly as interest rates rise. Already, real debt levels on the fiscal budget and un-reckoned-with entitlements can be vastly higher than the public is generally told.

Meanwhile, magical thinking that government outlays create wealth is fashionable among progressives who advocate Medicare for All, a Green New Deal, and a guaranteed national income.

The Trump budget projections back off a sumertime deal with Congress on non-defense domestic spending. That deal will likely stick, though meaning cuts won’t materialize, and Trump’s lowered deficits won’t appear. The CBO figures will be closer to the mark.

Still, as Russell Vought, acting director of the Office of Management and Budget put it, “We believe we can make a big dent and get back in the realm of fiscal responsibility.”

Lots of cuts are proposed for social programs like Medicaid, disability and food stamps. There are big cuts slated for the Environmental Protection Agency and departments like Commerce, Education, Housing and Urban Development, and State (including foreign aid but not Ukraine).

Also invoked are proposed reductions in growth of the federal payroll by aligning to private sector (p. 21), and eliminating improper payouts (p. 22). There’s less on border wall than the prior request.

The prominent exception to social program cuts is a new federal family leave program (p. 74), something Trump touted during the past two State of the Union Addresses, which heralds new regulation on private employers later. Trump would also expand regulation of tobacco products with an all-new agency (p. 53).

The bulk of federal social spending is on autopilot. If Trump’s growth projections are wrong and/or cuts never emerge, rising interest rates on the accumulated debt could mean a tailspin.

While Republicans in the 1990s promised to get rid of entire departments like Energy and Education, there’s nothing remotely like that going on now. That era was a big contrast to today’s big science, big infrastructure, big homeland security, and looming big compromise with Democrats on infrastructure outlays (streamlining of and spending on which partly, and paradoxically, partly undergirds the FY 2021 budget’s growth projections).

When the issue is finally forced upon us, a fruitful approach on domestic concerns like transportation, education, health, job training and other grant-in-aid programs (now topping $600 billion annually) would be to leave the dollars in the states, as former U.S. Senator and federal judge James L. Buckley argues in Saving Congress from Itself.

It’s remarkable how big the federal government has become, and how easily it absorbs and regulates private activity from the top down, which gradually ceases to be seen as regulation.

Apart from the untethered spending though, there is some continued good news in this budget.

Economic growth matters, and prior Trump budgets have, and this one continues to, emphasize regulatory liberalization red tape relief. Freeing up productivity and ingenuity feeds back into the fiscal statistics and gives breathing room until Congress fixes the deficit/debt/autopilot-spending problems.

According to the new budget, “The Trump Economy stands firm on the proven pro-growth pillars of tax cuts, deregulation, energy independence, and better trade deals.” (p.5)

I like the first two of those in particular, but in any event, fiscal budgets and regulatory concerns are intertwined. Regulation, which has macroeconomic effects, is even less disciplined than spending is, so a little relief can go a long way, as the Council of Economic Advisers has pointed out. This theme needs much more exploration.

Back in the 2018 budget proposal, the administration said “We must eliminate every outdated, unnecessary, or ineffective Federal regulation, and move aggressively to build regulatory frameworks that stimulate—rather than stagnate—job creation. Even for those regulations we must leave in place, we must strike every provision that is counterproductive, ineffective, or outdated (pp. 1-2).” Similarly, last year’s budget talked of “Cutting the Red Tape: Unleashing Economic Freedom.” (p.13)

Trump’s budgets uniquely reference anticipated savings from regulatory rollbacks, reforms, and a regulatory oversight agenda fueled by executive orders. Earlier budgets invoked bipartisan pro-liberalization reform proposals like improved air traffic control and highway tolling. While Trump has added plenty regulation of his own, he has in many respects frozen the traditional rulemaking apparatus.

The theme is continued in the FY2021 budget. Capping federal spending is important, but so too is capping what the government can force the private sector to spend on regulation. As Trump’s 2018 budget had put it, “Everyone believes in and supports safe food supplies and clean air and water. But the agencies of the Federal Government have gone way beyond what was originally intended by the Congress.”

In the new budget’s entry on “Regulation Relief,” the president’s “Budget Message” to Congress says (p. 2):

Many pundits and Washington insiders laughed when I promised to cut two regulations for every new regulation. …. Our commitment to regulatory reform stems from the simple truth that the vast majority of business owners want to do the right thing, comply with the law, and treat their workers fairly. The Federal Government ignored this reality for far too long and abused its authority to go after businesses, especially small businesses and entrepreneurs, in ways that can only be described as arbitrary and abusive. … The United States environmental record is one of the strongest in the world and continues to have some of the cleanest air and water in the world.

Getting control of regulatory overreach at least partly improves prospects for getting spending under control. It hasn’t worked yet, though; it’s one of those necessary-but-not-sufficient sorts of things.

The continued changes in the regulatory enterprise that Trump proposes in his budget should positively affect economic growth statistics, and in turn fiscal bottom lines, if the federal government can restrain itself.

In “Historic Red Tape Relief” (pp. 19-20) the new budget describes cutting regulatory costs of billions rather than adding billions, as had been the prior approach. The document emphasizes small business, farmers, barriers to energy production, and states:

The strategy is simple: by eliminating or amending costs that are duplicative, unnecessary, ineffective, or unduly burdensome, the Administration is unleashing the ingenuity, determination, and know-how of the private sector, which has always been the principal driver of American prosperity.

What next? Emphasis in 2020 includes purported new regulatory savings from reductions in fleet mandates for Corporate Average Fuel Economy standards, a rewrite of the Waters of the United States environmental rule, and improvements in agency guidance documents that influence business.

It is unlikely in this election year (so long as the economy remains healthy) that Congress will recognize the background role of red tape reforms in its own deliberations and scoring of what ultimately emerges as the fiscal year 2021 federal budget.

When it does, someday, there are solutions waiting on the shelf. They include the now-dormant but bipartisan Regulatory Accountability Act that would codify certain regulatory oversight principles that have long bipartisan pedigree.

As the new budget says, “American families and entrepreneurs are not the enemy, and it is long past time the Federal Government stopped treating them as such.”

If Congress can’t tame the deficit, maybe those families and entrepreneurs can.