Trump Budget Would Cut Medicaid, Rely on Rosy Growth Projection

President Donald Trump proposed a $4.1 trillion spending blueprint Tuesday that amounts to a sweeping overhaul of the government's safety-net programs. It calls for deep cuts to programs such as Medicaid and food stamps, while projecting a big boost to economic growth that could be difficult to achieve.

The budget would cut overall federal spending by $4.5 trillion over the next decade, more than offsetting a short-term boost in funding to the military, $200 billion for infrastructure investment and $19 billion on a new parental leave program.

It assumes tax cuts will boost economic growth enough to pay for themselves and raise enough additional revenue to eliminate the deficit in a decade.

The budget proposal, for the 2018 fiscal year that begins Oct. 1, is one of the clearest windows yet into Mr. Trump's values and priorities. But it is likely to face blowback on Capitol Hill, even among some Republicans, who have balked at cuts to foreign aid, farm subsidies and health-care programs for low-income families.

The primary driver of savings in Mr. Trump's budget comes from more than $800 billion in cuts to Medicaid, the federal-state health program for the poor, despite a pledge from the president on the campaign trail not to touch the program.

Mr. Trump's budget director Mick Mulvaney said Monday much of the savings will come from changes in the GOP's health-care overhaul bill, which Mr. Trump supports. But the administration's budget would cut more than $600 billion from Medicaid and the federal Children's Health Insurance Program on top of the $250 billion saved from repealing and replacing the Affordable Care Act.

The plan also assumes that economic growth that would reach 3% by 2021 will help balance the budget within 10 years. Many economists have questioned whether the economy can grow much faster than its current pace without long-term investments in programs that boost worker productivity or help expand the labor force.

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

Mr. Mulvaney said the budget proposals will help bring workers off the sidelines, in part by requiring them to have jobs in order to qualify for assistance programs such as food stamps, a change that is projected to save $193 billion. He said the new paid parental leave programs he said will help parents keep working.

"We believe that we can get to 3% growth, and by the way we do not believe that that is something fanciful," he said.

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.

Write to Kate Davidson at kate.davidson@wsj.com and Peter Nicholas at peter.nicholas@wsj.com

(END) Dow Jones Newswires

May 23, 2017 12:10 ET (16:10 GMT)