In Today's World, Trump's Balanced Budget Will Require Regulatory Reform

It seems every American president’s fiscal budget gets declared DOA.

Presidents signal priorities to Congress, which subsequently goes and does at it chooses. Sen. Mitch McConnell offered praise for Donald Trump’s budget this week, but had hinted earlier to Bloomberg that Republicans would ignore the proposal.

The big picture of Trump’s budget for fiscal year 2018 (which begins October 1), is that it greatly boosts defense but would cut spending $3.6 trillion over 10 years, with nearly a trillion of that coming from Medicaid and the SNAP program.

But that doesn’t change the fact that federal spending is headed back to $4 trillion annually no matter what–like it was during the downturn/stimulus era–and then beyond. Congress will claim to ignore Trump, then spend that much and more anyway.

Trump’s A New Foundation for American Greatness would purportedly balance the budget in 2027 (alas, after five elections) by imputing a (much) higher annual economic growth rate of three percent.

That growth would be driven by tax policy changes such as tax rate cut to 15 percent from 35 percent, but importantly, also by regulatory reforms.

Many see such assumptions as overly speculative. But sustained recovery and growth does depend upon regulatory liberalization.

Some detractors say Trump’s proposal hurts his own supporters the most.

Bloomberg, for example, fretted that the Trump budget “shrinks the safety net for the poor, recent college graduates and farmers,” and that that it “relies on a tax plan for which the administration has provided precious little detail, the elimination of programs backed by many Republican lawmakers, and heavy use of accounting gimmicks.”

Social programs, Medicaid, agriculture subsidies and student loans do all get cut. Furthermore, there are 66 programs the administration would eliminate entirely if Trump had his druthers.

A prominent exception to social program cuts is a new a new federal government family leave program, which could lead to new regulation on private employers down the road.

But at $4 trillion and rising, the same as it would have done had Hillary Clinton won the November 2016 election, the federal budget remains enormous. We regularly indulge in an untethered debate over what an already too big federal government spends in entitlement, military and discretionary categories that are each excessive.

Trump, for his part, would spend more on military, border security and his wall (until presumably Mexico kicks in the bucks).

He would also put some $200 billion into leveraging infrastructure, which can lead to new strings and regulations. A better approach on concerns like transportation, education, health, job training and other grant-in-aid programs (now topping $600 billion annually) is to leave the dollars in the states, as former U.S. Senator and federal judge James L. Buckley cogently argues in Saving Congress from Itself.

Under Trump, the deficit, at a proposed $440 billion in 2018, would fall to $110 billion in 2026. A $16 billion surplus is projected for 2017. (There’s been no surplus for over 15 years.)

For some perspective, Barack Obama’s final budget called for spending $52 trillion over the 10 years between 2017 and 2026; Federal spending would have stood at $6.15 trillion annually by 2025, with no hint of balance. Back then Obama also previewed non-starters like a tax-and-spend green mass transit programs.

By contrast, $48.9 trillion would be spent under Trump over 10 years. At the end of 10 years, annual spending would be $5.7 trillion.

Sure, both totals are less than Obama. But it’s easily seen that if Trump’s cuts or the equivalent don’t happen, America is getting Obama’s spending levels. Even under Republicans’ 2015 “Balanced Budget for a Stronger America” vision document it wouldn’t have taken long to reach a $5 trillion budget.

Clearly, if no cuts (including in defense), then no surplus. Big-picture spending and the attendant intervention and regulation that accompanies it is alarming, no matter whether the numbers come from Democrats or Republicans. The bulk of federal spending is on autopilot.

While Republicans in the 1990s promised to get rid of entire departments like Energy and Education, there’s nothing like that now. That era was a big contrast to today’s big science, big infrastructure, big “homeland security,” big cybersecurity and looming big compromise with Democrats on so-called Internet neutrality.

William Devane, who’s only played presidents on TV (many times), is among the few talking about the federal debt anymore. What happened? Trump’s proposal for a balanced budget aside, CBO projects a deficit over $1 trillion by 2023, and a shocking $1.4 trillion by 2027.

It’s remarkable how big the federal government has become, and how easily it absorbs and regulates private activity.

As rates rise, interest on the accumulated debt will send things into a tailspin. So economic growth matters, and the Trump budget does point to red tape and regulatory relief, which feeds back into the fiscal statistics and gives breathing room until Congress fixes (one hopes) the deficit problem.

Fiscal budgets and regulatory concerns are increasingly seen to be intertwined. In recognition, the Trump budget proposes to “Roll Back Burdensome Regulations”:

“We must eliminate every outdated, unnecessary, or ineffective Federal regulation, and move aggressively to build regulatory frameworks that stimulate—rather than stagnate—job creation. Even for those regulations we must leave in place, we must strike every provision that is counterproductive, ineffective, or outdated.” (pp. 1-2)

While there is much criticism of Trump for assuming that 3% economic growth rate in his fiscal 2018 budget, regulations do have macroeconomic effects. Trump’s budget in part recognizes that by incorporating anticipated savings from regulatory rollbacks, reforms, and anticipated codification of executive orders (p. 14-15) into the budgetary bottom line, and implicitly, in the pursuit of federal budgetary surplus.Even if certain particulars of Trump’s budget are DOA, the recognition that cutting red tape and regulation to secure a more prolific and healthier economy will improve the fiscal bottom line is extremely important.

For example, along with a rollback of Environmental Protection Agency (both its size and its rules) and the inclusion of Obamacare repeal savings, the budget notes a number of bipartisan pro-liberalization reform proposals in areas like air traffic control and highway tolling, as well as a sweeping regulatory oversight agenda fueled by executive orders.

On the flip-side however, the Budget seems to maintain an ill-advised status quo on certain employment regulation at the likes of the Equal Employment Opportunity Commission, and, as noted, it even sets up a new federal family leave policy (p. 20) likely to, if extended beyond federal workers, gravely concern private sector employers.

Capping federal spending is important, but so too is capping what the government can force the private sector to spend. Perhaps there can be a meeting of the minds on that. Republicans and Democrats alike might agree with the Budget proposal that:

“Everyone believes in and supports safe food supplies and clean air and water. But the agencies of the Federal Government have gone way beyond what was originally intended by the Congress.” (p. 7)

As it happens, the bipartisan “Regulatory Accountability Act” now under consideration would codify certain regulatory oversight principles that have long bipartisan pedigree.

Getting control of regulatory overreach at least partly improves prospects for getting spending under control. The changes in the regulatory enterprise that Trump proposes in his budget should positively affect economic growth statistics, and in turn fiscal bottom lines. That recognition is what is most unique about this budget, and one would hope, influence congressional action.

While the budget as presented may be dead on arrival, we can expect Congress to increasingly recognize the importance of red tape reforms in its own deliberations and scoring of what ultimately emerges as the fiscal year 2018 federal budget.

Originally posted to Forbes.