The FY 2018 Budget Resolution passed the House Budget Committee (HBC) July 19, 2017 on a mostly party-line vote 22-14. However, doubts about the budget plan passing on the House Floor were expressed by Freedom Caucus chairman Mark Meadows due to concerns of conservatives about a possible Border Adjustment Tax (eliminating corporate deductions on imports) to pay for tax rate cuts.
Highlights and analysis of the HBC budget plan:
- Medicaid Cuts: HBC budget proposes $1.5 trillion in Medicaid and other health programs over 10 years. Medicaid is the joint federal-state health coverage program for low-income elderly, families, and disabled Americans. FedWeb Medicaid page
- Medicare Cuts: HBC plan proposes Medicare reductions of $487 billion over 10 years. FedWeb Medicare page
- Unspecified Cuts in Other Entitlement Programs: HBC budget calls for $2.5 trillion over 10 years in unspecified entitlement cuts; reductions of this size would likely impact food stamps (SNAP) and child nutrition programs, Earned Income (EITC) and Child Tax Credits, Supplemental Security Income (SSI), Temporary Assistance to Needy Families, Pell Grants and student loans, and federal retirement programs. FedWeb entitlements page
- Sharp Increases in Defense: HBC budget calls for a 13% ($72 b) single year increase in defense spending above the statutory cap level for FY 2018, and $929 billion in increases over 10 years. Ironically, these sharp increases come at a time when the Administration is calling for allies to carry more of the defense burden. (The U.S. currently spends more on defense than the next eight countries combined — China, Russia, Saudi Arabia, India, France, UK, Japan, Germany). FedWeb Defense page
- Cuts in Non-Defense Discretionary (NDD): HBC budget calls for $1.3 trillion in cuts to non-defense discretionary programs over 10 years. (Non-defense discretionary spending includes government functions such as law enforcement, veterans’ healthcare, homeland security, education, disease and epidemic control, infrastructure, food and drug inspection, disaster relief, and health research.) By 2027, total NDD would be 44% below 2010 spending levels after adjusting for inflation and, as a percent of the economy, spending on domestic discretionary programs would be at the lowest level since before the Depression. FedWeb NDD page
- No New Infrastructure Investment: HBC budget plan proposes no new federal funds over the next 10 years for infrastructure investment.
- Tax Cuts: HBC budget promises tax cuts will be fully paid for by repealing unspecified current deductions and credits. If the House GOP tax plan released in 2016 is used as a template for the proposed tax cuts, 96% of the cuts would go to households with incomes over $1 million once the tax plan is fully phased in, according to the nonpartisan Tax Policy Center. HBC budget plan proposes to combine the tax cuts and entitlement spending cuts into a single Reconciliation bill,which could jeopardize the tax cuts.
- Dubious Deficit Claims: HBC budget, in total, calls for $5.8 trillion in deficit reduction over 10 years, however, most of the budget savings are dubious:
– Rosy Scenario: $1.5 trillion is claimed from assuming economic growth rates significantly higher than the nonpartisan CBO which uses an average of private sector projections.
– Entitlement Cuts “Assumed” but not required: HBC budget “assumes” $2.5 trillion in non-health entitlement cuts but requires congressional committees to report legislation making less than 10% of the cuts ($203 billion over 10 years).
– $1.3 trillion in unspecified non-defense discretionary cuts are assumed.
– $700 billion in budget savings is assumed from setting up a commission to look for ways to reduce improper Medicare, Medicaid, and EITC payments.
- Is Balanced Budget the right goal? Aside from the validity of the claimed budget savings, there is also considerable disagreement on whether a “balanced budget” is even the correct economic goal:First, the federal government irrationally lumps together operating costs and long-term investments in a single “unified budget.” State governments, by contrast, separate ongoing expenditures and long-term investments into separate operating and capital budgets. If States included spending for roads, bridges, and schools in a single unified budget, together of annual operating expenses, they would never achieve the “balanced budgets” most States are required to adopt.Second, even if the federal government’s operating expenses were separated from long-term investments, the balancing of every annual operating budget may not be the correct goal. Accumulated federal debt as a percent of GDP and annual interest payments are more meaningful metrics. (Annual interest payments are projected to exceed $800 billion by 2027.)
- Bottom-line: Public debt as a percent of GDP is rising dangerously and a long-term debt stabilization plan is necessary for our nation’s stability. At the same time, equally important are preservation of the social safety net, affordable medical care for all citizens, long-term investment in infrastructure, student loan relief, and economic relief for the middle class. Developing a long-term plan to accomplish all of these goals in a fair and balanced manner requires a serious bipartisan effort. The Domenici-Rivlin and Simpson-Bowlesplans of 2010 both demonstrate that bipartisan comprehensive plans can be achieved when policymakers set aside ideology and put the nation ahead of partisan politics.