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Trump's Budget Represents His Administration's Plan for Solving America's Economic Ills

And, as it turns out, many economists don't love the administration's apparent investment priorities.
A woman holds a bag of pears.

After months of speculation, the Trump administration released last week its full budget proposal for 2018. As expected, the budget calls for increases in spending on defense and border security (including funding for a wall along the southern border of the country). It also manages to balance the budget within 10 years (at least it does according to some extremely sunny gross domestic product (GDP) growth projections and highly questionable math) without making any cuts to Medicare and what the administration describes as the "core" function of Social Security—retirement benefits. It's a feat that Mick Mulvaney, director of the Office of Management and Budget, seems pretty impressed by.

"[President Donald Trump] said, 'I promised people on the campaign trail I would not touch their retirement, and I would not touch Medicaid,'" Mulvaney said at a press briefing on the budget. "And we don't do it. I honestly was surprised that we could balance the budget without changing those programs, but we manage to do that."

But the Trump administration only achieves this economic equilibrium by cutting funding to pretty much everything else. In particular, many programs that economists generally consider to be good investments, from a human capital standpoint, would see large cuts. And in an era defined by unparalleled economic inequality, concerns over economic mobility and declining opportunities for low-skill workers, and frequent hand-wringing about automation and a skills gap, curtailing federal investments in the health and skills of our current and future workforce may be the opposite of what's required.

Consider, for example, the Supplemental Nutrition Assistance Program, otherwise known as the "food stamp" program. Economists know that food stamps provide substantial long-term economic and health benefits for children who receive them. Yet the budget calls for cutting the program by 28.8 percent over the next 10 years. It would accomplish this by shifting costs to the states; cutting benefits to the elderly, disabled, and working families earning slightly more than SNAP's current income cut-off of 130 percent of the poverty line; and tightening work requirements for able-bodied adults without dependents in economically distressed areas of the country.

For many economists, the SNAP cuts are deeply concerning. Diane Schanzenbach, the director of the Hamilton Project and an economist who studies SNAP, says these slashes could have devastating effects on food security during economic downturns. States, unlike the federal government, must balance their budgets regardless of economic conditions, which means states would themselves be unable to increase aid in the event of another downturn. Because of the changing nature of our safety net, SNAP was one of the only government assistance programs during the Great Recession that responded as needed.

"Turning costs over to the states … is going to dampen the counter-cyclicality of the food stamp program," Schanzenbach says. "That is not how a safety net is supposed to work—you need a safety net to get bigger when the economy is bad. There are lots of people who fell right through that safety net during the last recession."

Also on the chopping block: the Children's Health Insurance Program, which provides health insurance for low-income children and would get cut by 19.4 percent in 2018; Medicaid, which would receive a cut of 16.5 percent; and Temporary Assistance for Needy Families (TANF, otherwise known as welfare), which would receive a 13 percent cut. The budget also proposes significant cuts to federal spending on K-12 and higher education, job training programs, unemployment insurance, the Earned Income and Child tax credits, supplemental security income, and social security disability.

"You need a safety net to get bigger when the economy is bad. There are lots of people who fell right through that safety net during the last recession."

The administration has defended the various safety net cuts proposed in the budget on the grounds that they won't affect anyone who "really needs" the benefits. "We are not kicking anyone off of any program who really needs it," Mulvaney told reporters. "We have plenty of money in this country to take care of the people who need help. And we will do that."

According to Mulvaney, the solution to both budget deficits and the country's economic woes is simple: All those people voluntarily staying out of the labor force in favor of living high on government handouts need to get off the couch, get a job, and start contributing to America's economy in a meaningful way so the country can reach the 3 percent GDP growth that this entire house-of-cards budget is built on. "If you're on food stamps, and you're able-bodied, we need you to go to work," he said.

But economists who study poverty, inequality, and the safety net are skeptical of Mulvaney's implication that the safety net is full of people who could be working. Here's what Melissa Kearney, an economics professor at the University of Maryland who also served as an economic advisor on John McCain's 2008 campaign, had to say about this notion:

This idea that there's all these able-bodied individuals out there who should be working and aren't, is just not true. Very careful research suggests that the food stamp program/expanded Medicaid … those programs are not driving down employment rates to any substantial effects…. I am genuinely perplexed about whether the people who purport to believe that this will work are being disingenuous or just really don't have a sense for what the evidence is. I am fully on board with encouraging work, but the way to do that is to offer various ways for people to re-enter the labor force, not threaten them with food insecurity.

Since the Trump administration's budget was released, most everyone on Capitol Hill, including Republicans, have pronounced it "dead on arrival"—the cuts seem to be too deep for even conservative Republicans. Nonetheless, this budget illustrates, in detail for perhaps the first time, the president's vision for how he plans to fix the serious economic challenges facing the country, economic challenges that played a role in propelling him into office. And that vision seems to consist almost entirely of tax cuts for corporations and the wealthiest Americans, combined with cuts to government spending on health care, nutrition, education, and job training.

In some ways, this economic philosophy is not surprising coming from a Republican president, but it is jarring coming from a man who ran as a populist outsider. In order to believe that this budget would actually help the low- and middle-income Americans in economically distressed areas that rallied to the president, one would have to hold two beliefs: that tax cuts do, in fact, provoke runaway GDP growth and pay for themselves, and that runaway GDP growth on its own will solve the challenges that many struggling workers are facing today.

As to the first, economists, even conservative economists, are skeptical.

"[T]his argument that if you cut tax rates at the top, they'll invest their savings and that will grow the economy—there's really not evidence of that," says Ron Haskins, an economist at the Brookings Institution who helped write the 1996 welfare reforms and served as an advisor on welfare policy to President George W. Bush.

But economists are also skeptical of the second belief, especially in light of recent economic trends—given the economic realities of trade and automation, how will a booming economy help, say, a laid-off factory worker in Michigan who wants to re-train as a registered nurse or information technology worker? Or the child of that factory worker who relies on the Children's Health Insurance Program for health insurance and federal work-study aid to pay for the post-secondary education that's now the best route to economic stability?

"[P]roviding a big tax cut for the rich, it's very unclear what the productivity effects are for that, because they've already done so well after the last four decades," says Jim Ziliak, an economics professor at the University of Kentucky who studies the social safety net. "If you counter those tax cuts with a significant retrenchment on the generosity of the welfare state, you're somehow making the argument that there's going to be a huge productivity boom and demand for labor that'll offset the cuts in benefits. And that's just not likely."

It is no doubt true that a rising tide lifts all boats. If the economy actually did reach 3 percent GDP growth, it would be good news for many American families; the boom years of the late 1990s were one of the few periods of broad wage growth in recent history. But it is also true that this country is in the midst of some very painful economic transitions and transformations, which this budget does little to address.

"We need to be having a serious conversation about re-skilling in this country, and job re-training, and we're seeing the opposite," Schanzenbach says. "The only serious answer to any of these long-term issues has got to be the skills of our people. They could have doubled down on re-training and re-skilling, and lifetime learning, but they did the opposite."