Trump Sets Up Another Spending Fight with Democrats

Plus, tax cut boost has come to an end, consumers suggest

Trump Sets Up Another Spending Showdown with Democrats

President Trump shot down the idea of negotiating a bipartisan two-year spending deal to avoid steep automatic cuts from taking effect next year.

“House Democrats want to negotiate a $2 TRILLION spending increase but can’t even pass their own plan. We can’t afford it anyway, and it’s not happening!” he tweeted Thursday night. (The $2 trillion figure is the estimated 10-year cost of a two-year, $358 spending increase proposed by House Democrats. The increased annual spending under the proposal is assumed to keep growing with inflation over the full 10-year period.)

The background: Under a 2011 law, federal spending is set to drop by 10 percent next year, or $126 billion, unless lawmakers can agree to a deal to once again lift discretionary spending caps.

Senate Majority Leader Mitch McConnell said this week that he and House Speaker Nancy Pelosi had agreed to begin talks on a new two-year deal. "I’m hoping this will be the beginning of a bipartisan agreement, which will be necessary in order to have an orderly appropriations process, not only this year, but next year as well," McConnell told reporters on Tuesday.

The challenges: But as those negotiations get going, they’ll face some obstacles.

First, House Democrats are split on how to divide defense and nondefense spending. They failed to come together this week in support of a 2020 spending plan that called for setting spending levels at $664 billion for defense and $631 billion for nondefense programs. Those intraparty tensions might make it harder to find votes for any bipartisan deal. In the end, though, progressive leaders are likely to sign on to a deal to raise defense spending, with or without serious arm-twisting.

Trump remains a bigger wild card. McConnell reportedly said this week that the president supported the idea of bipartisan talks on a new spending deal. But while congressional leaders want to raise the spending caps, Trump’s tweet — and recent comments from White House officials — suggests that he is willing to let the automatic budget cuts kick in, or at least is staking out a hardline position as an opening bid in the talks.

The White House wants to maintain increased defense spending while avoiding another dollar-for-dollar deal to raise nondefense outlays as well — the opposite of the Congressional Progressive Caucus’s position. Will he agree to sign off on what McConnell and Pelosi negotiate? Or, as the 2020 election nears, will he stick to his proposed spending cuts, which might play well with his base — even if they could slow the economy?

Why it matters: The disarray and likely brinksmanship could all set up another showdown over spending — and a dangerous fiscal cliff toward the end of the fiscal year, when the debt ceiling will also have to be raised.

Americans Don’t Trust Government but Don’t Want to Cut Programs, Either

Despite a general lack of trust in the federal government, Americans show little interest in reducing spending on specific government programs, according to a new report from the Pew Research Center.

“When Americans are asked to make up the budget for the federal government, they have little appetite for austerity measures,” the report says. “Asked about 13 different government program areas, from veterans benefits to foreign aid, no more than about a quarter favor reducing spending in any specific area.”

Some programs earn considerable support, with a solid majority of the 1,503 adults surveyed last month saying the U.S. should spend more on education, veterans benefits and infrastructure (see the chart below). Help for the unemployed and needy foreigners are less popular, but even so, less than a third of respondents said the government should reduce spending on any particular program.

Pulling back a bit, about half (47%) of Americans say they support the general idea of a smaller government offering fewer services, even if they’re unenthusiastic about cutting specific programs. At the same time, about half (also 47%) say they support the idea of a bigger government offering more services. These views have been relatively stable over the last few years, Pew said, although the smaller government view had considerably more support in the 1990s.

Partisan differences are pronounced on this question, with 74% of Republicans and Republican-leaning independents saying they want a smaller government and 67% of Democrats and Democratic-leaning independents saying they prefer a bigger government.

One thing just about all Americans can agree upon, though, is that they don’t generally trust the federal government. Just 17% of survey respondents said they believe the government will do the right thing all or most of the time. (The peak reading for that question was in the early 1960s, when 77 percent said they trusted the federal government to do the right thing.)

So what’s it all add up to? The Washington Post’s Catherine Rampell summed up the Pew report this way in a tweet: “Americans love government spending and hate taxes.”

Quote of the Day

“The big problem in this country was not that it was too difficult to be wealthy. It just isn’t the big problem in our country right now. It’s not what led to the political instability we’re seeing. It’s not what’s leading to diminished life expectancy, or the prospect of my generation is going to be the first in history to be worse off economically than our parents. What we could’ve done, especially if we were going to create a trillion-dollar deficit, is make the kinds of investments in infrastructure and education and health that would have made this whole country better off.”

– Pete Buttigieg, mayor of South Bend, Indiana, and a Democratic presidential candidate, in an interview with CNBC’s John Harwood

Enthusiasm for GOP Tax Cuts Has All but Disappeared: Survey

Consumer sentiment dropped slightly in the latest University of Michigan survey, with the index registering 96.9 in April compared to 98.4 in March. Richard Curtin, the survey’s chief economist, said the data suggest that “the impact of the tax reform legislation on consumer confidence has all but disappeared.”

Curtin said that “spontaneous references” to the 2017 tax legislation among survey participants had dropped to a net balance of zero, with 4 percent of respondents saying favorable things about it and 4 percent saying negative things (see the chart below). “The data do suggest that consumers thought that [the tax reform’s] stimulative impact on the overall economy has now run its course,” Curtin wrote.

Nevertheless, consumer sentiment remains elevated, Curtain said, as inflation-adjusted incomes continue to rise.

Are US Workers More Highly Taxed Than They Think?

Workers in many industrialized countries pay more in taxes than Americas do, but those workers also receive more benefits in exchange — benefits that American workers pay for separately. As a result, comparisons of tax rates across countries can be misleading, since they fail to capture all the payments made for similar benefits. The most important difference centers on health care, which most Americans pay for privately, along with their employers.

Using recent data from the OECD, Matt Bruenig of the liberal People’s Policy Project calculated “compulsory payment rates” across countries that include income taxes paid by employers and employees and add in the insurance premiums paid by both parties as well. Once American insurance premiums are included, the overall “tax” rate looks quite different in cross-national comparisons, with the U.S. rising near the top in compulsory payments paid by labor (see the chart below).

The upshot, Bruenig says, is simple: Americans “don’t pay as many formal taxes as [Europeans] do, but when you bring in payments we are compelled to pay and that are deducted straight out of our paychecks just like taxes are, it really does not look that much different, at least as far as labor taxes are concerned.”

Bruenig says this makes the case for Medicare for All that much stronger: “American workers already pay more than enough money to provide good health care to everyone in the country. It’s just that they pay it into a private insurance system that wastes large portions of it on rents and administrative redundancy.”

Your Prize for Making It Through the Week

Yes, the final season of “Game of Thrones” starts on Sunday night, and while at least one of your authors is eager to see how the drama and the dragons play out over these last six episodes, we can’t help but look ahead to another landmark pop culture moment: The December 20 release of “Star Wars: Episode IX.”

Lucasfilm confirmed on Friday that the last installment in the sequel trilogy will be called “Star Wars: The Rise of Skywalker,” and it released a two-minute teaser trailer, which you can watch here.

Send your tips and feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please encourage your friends to sign up for their own copy of this newsletter.

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