Trump’s $4.75 Trillion Budget Sets Up Another Fight with Congress

Plus, the money trail for prescription drugs

Trump's $4.75 Trillion Budget for 2020 Sets Up Another Fight with Congress

President Trump on Monday proposed a record $4.75 trillion budget for fiscal 2020 that calls for steep cuts to domestic spending on programs like health care and education and seeks to further increase spending on the military. The president’s blueprint also includes $8.6 billion for construction of a wall on the border with Mexico, potentially setting up another showdown with Congress over the issue — or even another government shutdown.

Russ Vought, acting director of the White House Office of Management and Budget, said in a statement the proposal “shows that we can return to fiscal sanity without halting our economic resurgence,” but Democrats sharply criticized the blueprint and fiscal watchdogs said it relied on fantasy assumptions.

Here’s a look at some key details:

A major increase in military spending: The president’s budget is the largest in U.S. history, and it calls for spending $56 trillion over the next 10 years. It proposes to raise defense spending to $750 billion — a nearly 5 percent increase from 2019 and even more than the Pentagon had asked for, Foreign Policy notes. But it achieves that increase, and stays within spending caps, by relying on what bipartisan critics decry as an accounting gimmick: shifting some $165 billion in regular defense expenditures to an off-the-books fund for fighting wars. The budget reportedly also proposes to increase spending on Veterans Affairs (up 7.5 percent) the National Nuclear Security Administration (up about 9 percent), the Department of Homeland Security (up more than 7 percent) and NASA (up 1.4 percent).

And big spending cuts elsewhere: The budget proposes a total of $2.7 trillion in spending cuts over the next decade, which the White House says is also more than any administration in history, under Trump’s directive to cut spending by 5 percent across a range of domestic and international programs. The cuts would not be evenly distributed. Axios has a rundown of proposed reductions across various departments, including a roughly 31 percent cut to the Environmental Protection Agency, a 23 percent cut to the State Department, a 21.5 percent cut to the Transportation Department and a 12 percent cut to the Education Department. The cuts in nondefense discretionary programs for 2019 would amount to $100 billion, according to the Times.

Including big changes to health care programs: The budget also proposes to slow spending on Medicare by $845 billion over 10 years relative to the current baseline, in part by curtailing fraud, abuse and payments to hospitals. And it seeks to dramatically overhaul Medicaid, the health care program for low-income Americans, reducing spending by $1.5 trillion. White House officials said the cuts include $1.9 trillion from mandatory safety net programs like Medicaid, The New York Times reports. The budget also proposes new work requirements for food stamps, federal housing support and Medicaid, which the administration says would reduce spending on those programs by $327 billion.

Seven Takeaways on the Trump 2020 Budget

It won’t mean much on Capitol Hill: Trump’s proposal has no chance of being adopted by Congress. “To call what he has outlined a ‘dead on arrival budget’ would be extremely kind. It is a ‘dead before departure budget,’” former New Hampshire senator Judd Gregg wrote at The Hill in response to a preview by the White House’s acting budget director. “The absurdity of this proposal is only exceeded by its irrelevance.” But don’t ignore the new budget completely — view it as more of a political document, outlining the president’s priorities heading into the 2020 election campaign.

Not surprisingly, the proposed cuts to health care, environmental and other programs quickly drew criticism from Democrats. “The budget confirms what we already knew about the Republicans’ $1.9 trillion tax scam: it does not pay for itself, it will increase the deficit, and to help fill in the enormous hole they have created, Republicans will demand cuts to programs upon which working Americans, our economy, and national security rely,” House Budget Committee Democrats said in a press release.

Lawmakers are likely to ignore Trump and work out their own budget deal: “Recent spending deals have involved Democrats accepting big Pentagon funding increases pushed by Republicans, in exchange for GOP support for comparable domestic investments,” The Washington Post says. “Lawmakers expect that they will ultimately reach an agreement along similar lines this time, too, which would amount to a bipartisan repudiation of the president’s budget blueprint — although Democrats intend to push for even higher levels of nondefense domestic spending now that they control the House.”

It relies on some optimistic economic assumptions: The budget says that Trump’s economic policy, including tax cuts and deregulation, will spur a sustained growth rate of 3 percent a year through 2024, with growth slowing slightly in the five years after that. Those projections are much rosier — about a percentage point better, in fact — than the forecasts from most independent analysts, who expect growth to wane much more quickly as the short-term boosts from tax cuts and spending increases wear off. “Absent these rapid growth assumptions, debt under the President's budget would likely be about $2 trillion higher by 2029,” the Committee for a Responsible Federal Budget calculates.

And some unrealistic spending cuts: On top of that, the budget’s non-defense spending cuts are simply unrealistic. CRFB notes that “the budget assumes non-defense discretionary spending will fall 9 percent between 2019 and 2020, and 26 percent by the end of the decade — despite inflation increasing overall prices by 26 percent.” The budget also proposes extending the individual tax cuts set to expire under the GOP’s 2017 law, but it hides the impact of that extension by incorporating the $1.1 trillion cost into its baseline.

It still projects big deficits anyway: The budget projects trillion-dollar deficits from 2019 through 2022. Even with the proposed spending cuts and rosy projections, the budget does not balance until 2034, a departure from Republican orthodoxy of recent years, which sought to reach balance after 10 years. Trump's tax cuts are a big reason. “[T]he White House’s new 15-year deficit target illustrates the fiscal constraints of an agenda that prioritizes tax cuts and increased defense spending while simultaneously protecting big-ticket items like Medicare from any major changes,” The Washington Post’s Damian Paletta and Erica Werner wrote before the budget was released.

And the promised deficit reduction over time is likely unattainable: The budget projects smaller deficits starting in 2021. But more sober economic projections combined with more practical assessments of possible spending cuts would produce a far smaller reduction in the deficit. “A realistic assessment of the President's budget is unlikely to show anywhere close to the deficit reduction needed to put the debt on a sustainable path,” CRFB said. The group estimates that the Trump budget would add more than $10 trillion to the national debt. Meanwhile, with the national debt now over $22 trillion, the budget projects spending $482 billion on interest payments in 2020, more than the $426 billion budget for Medicaid.

It’s setting up another border battle, and possibly a shutdown fight: The administration is requesting $8.6 billion in border wall funding, which would reportedly allow for 722 miles of barriers. The budget also includes $3.6 billion to pay back military construction projects affected by Trump’s declaration of a national emergency. Democrats say there’s no chance Trump will get the wall money he wants. “Congress refused to fund his wall, and he was forced to admit defeat and reopen the government,” House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer said in a joint statement. “The same thing will repeat itself if he tries this again. We hope he learned his lesson.”

Analyst Chris Krueger of the Cowen Washington Research Group summed up the outlook: “Congress does not want to go through another shutdown fight, has limited interest in weaponizing the debt ceiling, and collectively wants to spend a lot more money to lift the Budget Control Act caps on defense and non-defense spending to avoid the sequester...but that does not also apply to President Trump and Acting Chief of Staff Mick Mulvaney who want to fund the Border Wall, cut non-defense spending, jack-up defense spending, and prioritize payments post debt ceiling X-Date." That could add up to another showdown.

Tweet of the Day

From Steven Dennis of Bloomberg News:

Following the Money Trail for Prescription Drugs

The United States spends hundreds of billions of dollars on prescription drugs each year, but the money flows through a complex network of drug manufacturers, wholesalers, pharmacies, pharmacy benefit managers and health insurance plans that defies easy analysis. A new report from Pew Charitable Trusts digs into that sometimes opaque supply chain and finds plenty of opportunities for profit-making at each point in the system. Click through to Pew for a better look at the graphic below on prescription drug spending.

Here are a few key figures from the study:

  • Net spending on prescription drugs rose from $250 billion in 2012 to $341 billion in 2016.

     
  • Of the $341 billion total, the government paid $140 billion, patients paid $104 billion and employers paid $98 billion.

     
  • While out-of-pocket spending has remained relatively stable, patients are paying more for drugs through rising insurance premiums.

     
  • Retail pharmacy revenues more than doubled between 2012 and 2016, from $31 billion to $77 billion.

     
  • Wholesalers, pharmacy benefit managers and health insurance plans each claim about 5 percent of overall spending.

     
  • Manufacturers claim about 60 percent of all spending.

The bottom line: The prescription drug supply chain is dauntingly complex, but all the stakeholders have found profitable niches within it as overall spending increases year after year.

Lots of Young Americans Are Fine With ‘Socialism’

A new Harris poll published by Axios shows that members of the Millennial (in their 20s to mid-30s) and Gen Z (still mostly in their teens) age groups are more likely than previous generations to support policies historically associated with European-style democratic socialism.

“The word ‘socialism’ does not carry the same stigma it did in the past,” Axios’s Stef Kight writes, “now that it has been resurrected by celebrity politicians like Bernie Sanders and Alexandria Ocasio-Cortez. Young people's political views often change as they grow older, but their support for socialistic policies is a sign that the old rules of politics are changing fast.”

Millennials and Gen Z will make up more than a third of the electorate in 2020, Kight says, so their political preferences could carry real weight in the next election.

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