Trump's Budget Seeks Cuts to Taxes, Safety-Net Programs

By Peter Nicholas, Kate Davidson and Nick Timiraos Features Dow Jones Newswires

President Donald Trump on Tuesday will propose a plan he says will balance the federal budget in a decade on the strength of substantially faster economic growth and cuts to taxes and government safety-net programs.

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Programs that would see dramatic cuts include Medicaid, food stamps, disability benefits, welfare and student loans. The White House says the planned tax cuts can generate more revenue for the government rather than reduce it.

Mr. Trump's budget proposal -- the clearest window yet into the new president's expectations and priorities -- now goes to Congress, which will decide whether to turn the vision into reality. It is sure to face a difficult road on Capitol Hill, despite Republican control, given competing factions within the GOP and the near certainty of blowback from Democrats.

"It'll face a tough sled over here," Rep. Hal Rogers (R., Ky.), a former chairman of the House Appropriations Committee, said of the Trump budget.

Budget director Mick Mulvaney, briefing reporters on Monday, described how Mr. Trump arrived at the blueprint, personally going over proposed cuts line by line and delivering a verdict: "Yes" or "No."

Mr. Trump himself won't be on hand to sell the plan in Washington. He is on his maiden overseas trip as president, traveling through the Middle East and Europe.

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"I can't remember a major budget submission that wasn't scheduled around a presidential availability and the president using it as an opportunity to drive his message forward," said Jason Furman, a senior fellow at the Peterson Institute for International Economics and a former top Obama administration economic adviser.

The budget would cut overall spending by $4.5 trillion over a decade. That includes reductions to decades-old safety-net programs most identified with Lyndon Johnson's Great Society push of the 1960s. Those cuts would more than offset a short-term boost in funding to the military, $200 billion on infrastructure investment and $19 billion on a new parental leave program.

Among the reductions, the president's budget proposes $250 billion in saving over a decade through the repeal and replacement of the Affordable Care Act, President Barack Obama's signature legislative policy. Those savings would come largely through reductions to Medicaid, the federal-state health insurance program for low-income people. Other unspecified reforms to Medicaid and the federal Children's Health Insurance Program would shave another $616 billion from government spending through 2027.

As a candidate, Mr. Trump promised not to cut Medicaid. Asked about that pledge, Mr. Mulvaney said that much of the Medicaid cuts spring from changes included in the health-care overhaul that has passed the House and which Mr. Trump favors.

"It probably is the most conservative budget that we've had under a Republican or Democrat administration in decades," said Rep. Mark Meadows (R., N.C.), chairman of the House Freedom Caucus, a group of roughly three-dozen conservative House GOP lawmakers.

Some budget analysts said Republicans may resist spending cuts for safety-net programs, particularly as they pursue tax cuts that would lower rates for businesses and high-income households.

"Politically that is extremely difficult," said William Hoagland, a former congressional Republican budget aide who is now at the Bipartisan Policy Center in Washington. "You're talking about tax reform that would appear on the face of it to benefit the upper-income brackets while you're reducing support to the lower-income groups."

Underlying the plan to eliminate the budget deficit, the White House is projecting a decade of rosy economic conditions -- 3% growth, steady inflation of 2%, the jobless rate rising slightly to 4.8% and modest interest rate increase -- the kind of environment that would typically go in hand with strong worker productivity growth and a pickup in the labor force.

"The ugly truth is this: You can never balance the budget at 1.9% growth, " Mr. Mulvaney said. "It's just not going to happen."

One big question is whether much faster growth is achievable; the U.S. is already nearly eight years into an economic expansion with a low unemployment rate of 4.4% and the Federal Reserve raising short-term interest rates, which tends to curb growth. No expansion in history has lasted longer than 10 years. Moreover the economy has been held back by slow productivity growth and declining labor-force participation as the baby boom generation retires.

The Fed projects the economy will grow at a 1.8% annual rate in the coming years and the Congressional Budget Office projects 1.9% growth.

The administration is counting on tax and regulatory changes to stimulate growth. Faster growth, in turn, is projected to help reduce demand for safety-net programs such as food stamps and welfare.

Taken together with aggressive spending cuts the Trump administration says it can balance the budget by reducing outlays by $4.5 trillion over 10 years and increasing revenues -- even with cuts in tax rates -- by $1 trillion. Republicans have yet to coalesce around a common plan for cutting corporate and individual tax rates and face procedural hurdles to advancing a program, leaving the tax strategy a work in process.

At Mr. Trump's direction, the budget includes no cuts to the most popular entitlement programs: Medicare and Social Security, Mr. Mulvaney said.

The president's budget would impose new work requirements for able-bodied individuals to participate in the Supplemental Nutrition Assistance Program, also known as food stamps. It would also phase in a requirement that states match federal funding for the program, changes aimed at saving roughly $193 billion over the coming decade. In the recession triggered by the financial collapse in 2008 as many as 47 million people used the food-stamp program. That number has dropped by about three million as the economy has gradually recovered.

The budget would also limit eligibility for the earned-income tax credit and the child tax credit, trimming $40 billion of spending over the next 10 years, and would slash funding for disability insurance by $72 billion. Other spending cuts include $143 billion from changes to student-loan programs, $63 billion in reduced retirement benefits for federal employees, and $38 billion to curb certain farm subsidies.

Nondefense spending as a share of the economy would fall to just 1.5% by the end of the next decade, well below the lowest level in records going back to 1962.

"There's a certain philosophy wrapped up in the budget," Mr. Mulvaney said. "And that is we are no longer going to measure compassion by the number of programs and the number of people on those programs. We're going to measure compassion and success by the number of people we helped get off those programs and get back in charge of their own lives."

--Kristina Peterson contributed to this article.

Write to Peter Nicholas at peter.nicholas@wsj.com, Kate Davidson at kate.davidson@wsj.com and Nick Timiraos at nick.timiraos@wsj.com

(END) Dow Jones Newswires

May 22, 2017 21:14 ET (01:14 GMT)