The $844 Billion Mystery in Trump’s Budget

The $844 Billion Mystery in Trump’s Budget

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Plus: In search of the ‘disappearing corporate income tax’
Tuesday, February 11, 2020

The $844 Billion Mystery in Trump’s Budget

Unlike in previous years, the White House budget proposal released Monday didn’t include a detailed plan to replace major portions of Obamacare. It did include what Ricardo Alonso-Zaldivar of the Associated Press calls “an $844 billion mystery pot.”

The dollar figure represents a target for savings over 10 years resulting from what the budget calls Trump’s “health reform vision.” And that vision remains as grand as it’s been since Trump was a candidate: “The President’s great healthcare vision will ensure better care at lower costs,” the budget says. “Americans deserve affordable, personalized care that puts them in control and provides peace of mind. The President’s healthcare reforms will protect the most vulnerable, especially those with pre-existing conditions, and provide the affordability, choice, and control Americans want, and the high-quality care that all Americans deserve.”

A vital campaign issue: Voters say that health care is a top issue in the 2020 elections, and it’s a vulnerability for Trump. “Despite the strong economy, the number of uninsured people has edged up under Trump, and his eventual Democratic opponent is likely to have a plan to put the nation on a path to coverage for all,” Alonso-Zaldivar writes. “Meanwhile, the White House is supporting a lawsuit to overturn the Obama-era Affordable Care Act, jeopardizing coverage for some 20 million people, as well as protections for those with pre-existing medical conditions.”

The $844 billion question: It’s not clear just how or whether the Trump administration proposes to achieve its promises. But the size of the projected $844 billion in savings imply it would pursue large-scale changes. “Health reform always involves trade-offs, and those trade-offs become more apparent with details. So, it's not surprising that President Trump has avoided such details,” Larry Levitt, executive vice president for health policy at the nonpartisan Kaiser Family Foundation, tweeted. “But, the level of health care spending cuts he is proposing would have severe consequences.”

As Margot Sanger-Katz of The New York Times explains:

“The deep cuts enshrined in the budget’s numbers are not consistent with modest tweaks. Taken together with Medicaid changes recommended elsewhere in the budget, the proposal would strip about $1 trillion out of Medicaid and the Affordable Care Act’s premium subsidies, the two pillars of the law’s expansion of insurance coverage. By 2029, the cuts to those programs in Mr. Trump’s budget would represent around 85 percent of the total that the Congressional Budget Office estimates would otherwise be spent on Obamacare coverage that year.”

And Aviva Aron-Dine, the vice president of health policy at the progressive Center on Budget and Policy Priorities and a former Obama administration official, told the Times that the size of the projected cost savings don’t square with Trump’s promises to preserve existing patient protections. “You can’t cut $1 trillion from these programs and protect the most vulnerable,” she said.

What Trump’s budget signals for health care: Trump’s budget proposes to reduce the growth in Medicare spending, but it does not propose cuts in Medicare benefits. “Though the budget does propose reducing program spending by around half a trillion dollars through a series of cuts to payment policies, it does not make any major changes to the benefit structure of the program or for the populations that will be eligible for coverage,” Sanger-Katz notes.

On the other hand, the budget does signal that the administration would aim to cut Medicaid in ways that reduce coverage and benefits. “In Trump's budget, Medicaid would grow somewhat, but at a rate much slower than underlying health care costs,” Levitt said. “That would require cuts in the program or leave states holding the bag.”

The budget calls for Medicaid work requirements for “able-bodied” adults and for “ending the financial bias that currently favors able-bodied working-age adults over the truly vulnerable” in the program. Alonso-Zaldivar says that jargon means that the administration would seek to repeal the generous federal matching funds for states expanding Medicaid to cover low-income adults under the Affordable Care Act.

The administration defended the Medicaid cuts to reporters. “The Budget protects and preserves Medicaid by putting it on a sustainable path, so it can continue to provide vital services to those who need it the most, including children, the disabled, elderly and pregnant women,” one official told The Hill.

The bottom line: Trump’s budget does nothing to reduce his vulnerability on health care or counter attacks that his policies — particularly on Medicaid and the Affordable Care Act — would likely lead millions of people to lose coverage. The cuts and savings it proposes play right into Democratic attacks, even as they might also hearten some in his base. “President Trump has made clear his aim is to dramatically scale back federal health spending,” Levitt said. “No matter who the Democratic nominee is, the choice will be quite stark.”

More Reactions to Trump’s Budget

Esquire’s Charlie Pierce: “I mean, leaching funds from Medicare? Cutting the CDC in the middle of a pandemic? Cutting the EPA by a full quarter of its present budget? A ballooning deficit? There's something in there to enrage everyone from Bernie Sanders to Simpson and Bowles.”

The Week’s Jeff Spross: “The first thing to grasp about Trump's budget proposal is how absolutely insane its priorities are. The problem here is pretty straightforward: The Republican Party has long been obsessed with eliminating America's federal deficit — the shortfall between how much annual tax revenue it brings in and how much it spends. But Trump and his party want to protect military spending, and Trump himself has repeatedly promised to hold Social Security and Medicare harmless. Those three commitments rule out reductions to almost two-thirds of annual spending.

“Throw in the fact that Republicans are hell-bent against raising taxes — Trump's budget would make permanent the massive tax cuts they passed in 2017 — and their only remaining option is to cut the remaining third of the budget: Medicaid, other welfare state programs like food stamps, plus basically everything the federal government does that isn't either military or social insurance for old people. And to meet Trump's goal of balancing the federal budget in 15 years, these cuts have to be massive.”

Former Obama economic adviser Jason Furman: “Under Bush, Clinton and Obama the 10-year growth forecasts never differed from the Blue Chip forecast by more than 0.1 percentage point per year on average. This one is nearly 1.0 percentage point above the consensus for longer-term growth rates.”

The Washington Post’s Dana Milbank: “For once, President Trump spoke the truth. ‘We’re doing a lot of things that are good, including waste and fraud,’ he said Monday, as his administration released its proposed budget. ‘Tremendous waste and tremendous fraud.’

“No question about it! Trump’s budget is a tremendous fraud — and it lays tremendous waste to his promises.”

The Heritage Foundation’s Romina Boccia: “Washington’s consistent denial of the consequences of overspending by the federal government is one of the greatest threats to America’s future. President Trump’s FY2021 budget takes many important steps to curtail wasteful government spending, maintain successful pro-growth policy, sustain a strong national defense, and fund key constitutional priorities.”

Club for Growth President David McIntosh: “Making the Trump tax cuts permanent, continuing to deregulate economic burdens on job creators, and enacting better free trade agreements would usher in an economic environment that continues to improve all Americans lives by getting government out of the way so that innovation and entrepreneurship can flourish. While President Trump’s budget boldly proposes to cut a record $4.6 trillion of deficit spending, we know government spending needs to be cut even more and cut even faster in order to end out-of-control federal deficits. All federal spending programs should receive scrutiny and consideration for reductions in federal spending.”

The Committee for a Responsible Federal Budget: “While we are pleased that the President’s budget aims to reduce debt and are encouraged by many of the budget proposals, the budget relies too heavily on gimmicks and makes too few tough choices to truly address the fiscal situation.”

Quote of the Day

“The current low interest rate environment means that it would be important for fiscal policy to help support the economy if it weakens. Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn. A more sustainable federal budget could also support the economy’s growth over the long term.”

– Federal Reserve Chairman Jerome Powell, in testimony before Congress on Tuesday

In Search of the ‘Disappearing Corporate Income Tax’

Lawmakers clashed on Tuesday over the performance of the 2017 Tax Cuts and Jobs Act, with Democrats arguing that the law was far too generous to big business when it slashed the top corporate tax rate from 35% to 21%.

“Twenty years ago, we had a budget surplus,” Rep. Richard Neal (D-MA), chairman of the House Ways and Means Committee, said in his opening remarks. “Corporate tax revenues were twice as high as they are today. Now, corporations are paying less than ever, and corporate tax revenues are at their lowest level in history outside of a major recession.”

Jason Furman, one of three Democratic witnesses at the hearing titled “The Disappearing Corporate Income Tax,” said in his prepared remarks that corporate income tax revenues equaled 1.1% of GDP in 2019, a level that “is near the lowest since the 1930s (outside of recessions or their immediate aftermaths). U.S. corporate taxes are less than one half their historic average.” He also noted that corporate tax revenue as a share of GDP in the U.S. is now lower than in any of the top 30 developed countries except for Latvia.

Furman, who served as President Obama’s chairman of the Council of Economic Advisers and is now a professor at the Harvard Kennedy School, said the low level of corporate income tax revenues were a big part of why overall tax collections relative to the size of the economy are near 50-year lows, coming to 16.3% of GDP in 2019, down from 17.2% in 2017.

And the long-term revenue losses are likely to be worse than first estimated, Furman said, citing a recent update to the Congressional Budget Office’s cost estimate for the tax cuts. CBO’s original analysis put the total revenue loss from the tax package at $1.5 trillion over 10 years, but the most recent revision to the budget outlook now puts the cost at about $2 trillion, with much of the increase related to larger-than-expected revenue losses on the corporate side.

Those losses, driven by generous rule-writing and interpretations of the 2017 tax law by the U.S. Treasury, are so substantial that they were deemed “tax cuts 2.0” by the liberal-leaning Institute on Taxation and Economic Policy. (You can read more about the revision in a recent blog post from CBO director Phillip Swagel, and in this report on how corporate lobbying affected the interpretation of the tax law from Jesse Drucker and Jim Tankersley of The New York Times.)

For their part, Republicans rejected the entire line of inquiry, arguing that tax revenues are rising, U.S. businesses are now more competitive internationally and solid economic growth over the last two years must mean that the tax cuts are working just fine. “The whole premise of this hearing is false,” said Rep. Kevin Brady (R-TX), one of the architects of the Tax Cuts and Jobs Act. “Corporate taxes aren’t disappearing, they are growing — more than 12% last year. And according to CBO, corporate revenues are set to rise over the next decade both in real dollars and as a percent of GDP.”

Still, the sole Republican witness, former CBO director Douglas Holtz-Eakin, who now runs the conservative American Action Forum, couldn’t deny that tax cuts have in fact reduced corporate tax revenues. “TCJA reduced corporate income tax receipts; receipts in fiscal 2019 were $230 billion, down from $344 billion in 2015. This drop was to be expected,” he said.

At the same time, Holtz-Eakin noted that the CBO projects a steady increase in corporate tax revenues in the coming years. And he argued that it’s still too early to make any final judgments on the tax package, which, while “imperfect,” deserves some degree of credit for recent economic performance.


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