The trillions in shocking cuts in Donald Trump's budget, explained

On Tuesday, Donald Trump will unveil the first comprehensive budget proposal of his presidency, encompassing proposals affecting defense and non-defense funding for government agencies, tax changes, and funding for social insurance and assistance programs like Social Security, Medicare, Medicaid, and food stamps.

The budget broadly resembles plans put forward by now-House Speaker Paul Ryan, who as the House Budget Committee chair released a series of extremely aggressive budgets including trillions in cuts to programs for the poor. While Trump largely leaves Medicare and old-age insurance from Social Security unscathed, and boosts funding for border security, veterans, and defense, he cuts just about everything else.

What’s more, his budget assumes an extremely unrealistic economic growth rate — 3 percent, above the currently projected 1.9 percent — due to the administration’s tax plan. It appears the administration is counting on that growth both to pay for its spending in this budget and to pay for its tax cuts, meaning the budget doesn’t really add up at all.

It’s a startling, ambitious, and at times sloppy document that, for all its faults, clearly defines what the Trump administration wants to do with the federal government. And what the administration wants to do is dramatic, to say the least.

1) What are the big takeaways from the budget?

The numbers put out by Trump’s Office of Management and Budget are designed to balance within 10 years; that is, the budget is supposed to enact spending cuts deep enough to wipe out the annual budget deficit by 2027, year 10 of its operation.

The cuts include:

• All $880 billion in Medicaid cuts included in the Republican health plan that has passed the House, plus $610 billion in additional cuts due to adopting an even stingier formula for increasing Medicaid funding year over year. This amounts to a total cut to Medicaid of over 47 percent.
• $191 billion in cuts from Supplemental Nutrition Assistance Program, or food stamps, over 10 years. That's about a 25 percent cut. The administration claims it will achieve this by adding new work requirements, but it would effectively require kicking many people off the program or dramatically cutting benefit amounts.
• $40.4 billion in cuts to the earned income tax credit and child tax credit over 10 years, programs that, along with SNAP, make up much of the US's safety net for poor people. Trump would require parents receiving benefits to submit a Social Security number to weed out unauthorized immigrants — even those whose children are US citizens.
• $21.6 billion in cuts to Temporary Assistance for Needy Families, or welfare, over 10 years. That’s a nearly 13 percent cut to the program, which has already been cut dramatically since the 1990s.
• Huge cuts to most federal agencies: a 31.4 percent cut to the Environmental Protection Agency budget, 29.1 percent cut to the State Department, 20.5 percent to Agriculture, 19.8 percent to Labor, 16.2 percent to Health and Human Services, 15.8 percent to Commerce, 13.2 percent to Housing and Urban Development, 12.7 percent to Transportation, and 10.9 percent to Interior.

The plan raises no money through tax increases. It assumes that Trump’s proposed tax reform package passes, and is revenue-neutral, meaning it will neither increase nor decrease the deficit. The plan also assumes that growth will be 3 percent, not 1.9 percent, which increases tax receipts and helps pay for the whole package.

The budget also includes several bits of additional spending:

• A 4.6 percent increase in defense spending ($25.4 billion more a year)
• A 6.8 percent increase in funding for the Department of Homeland Security, including $2.6 billion in new border security funding to help pay for a border wall
• A 5.8 percent increase for the Department of Veterans Affairs

2) So these changes are going to happen?

Chip Somodevilla/Getty Images

No — not likely. The president’s budget is not law, and it is not actually implemented government policy. It is an opening volley in a months-long decision-making process established by the Congressional Budget Act of 1974, in which the House and Senate set spending levels for the various government agencies.

To make matters more confusing, the procedure laid out in that law isn’t always followed in practice, and is often circumvented by last-minute deals hashed out in Congress.

The short version is that the defense hikes and non-defense cuts that Trump is proposing haven’t been enacted yet, and likely won’t be enacted for months, if ever. To pass, they’d need to get at least 60 votes in the Senate, meaning at least eight Democrats would have to vote for the budget cuts or at least refuse to filibuster. That’s not particularly likely to happen.

The main purpose of the budget request is to formally lay out the administration’s stance on fiscal policy. It details specific policy changes the administration wants, how much those changes will affect spending and tax revenue over the next 10 years, and how individual agencies will be affected along the way.

For example, President Obama's last budget called for $312 billion in new infrastructure spending, $150 billion for universal pre-K and child care, and $60 billion to expand access to community colleges, paid for (and then some) by cuts in prescription drug spending, a cap on the value of tax deductions, new taxes on investment income, and more. The budget gave relatively precise estimates for how much each of these proposals was expected to cost or raise, respectively, and estimates of how this would affect the overall trajectory of the deficit (down) and spending and revenue levels (both up).

But you’ll notice that Obama did not actually get $312 billion in infrastructure spending, or a cap on tax deduction, or a tax increase on capital gains. That's because the budget request is only the first step in the process, and all the most consequential decisions are made by Congress.

The second step in the process is for the Senate and House budget committees to propose, pass, and then reconcile resolutions laying out detailed spending and revenue plans for the coming fiscal year. These resolutions often incorporate ideas from the president’s budget, particularly when the president’s party controls one or both houses of Congress, but they don’t need to.

When Paul Ryan was chair of the House Budget Committee, his plans incorporated little if anything from Obama’s budgets. If House Budget Chair Diane Black and Senate Budget Chair Mike Enzi have significant disagreements with Trump’s budget priorities, or enough members of their committees do, then the resolutions they each pass through committee could differ sharply from Trump’s plan.

Once Black’s and Enzi’s committees have passed resolutions, the full House and Senate have to pass them as well, and then the two bodies have to reconcile whatever differences exist between them. Then, finally, a reconciled joint House-Senate budget resolution can be passed by both houses. Notably, budget resolutions can’t be filibustered, and because they’re concurrent resolutions rather than laws, they don’t require the president’s signature either.

3) Okay, so Republicans in each House will pass this budget, and then it can’t be filibustered. Then the cuts take effect?

Again, no. For one thing, they aren’t going to be in a rush to pass a budget resolution, at least not for a while. That’s because they’re still operating under the fiscal year 2017 budget resolution, which includes “reconciliation instructions” enabling the passage of health reform legislation without it being subject to a filibuster. Until the health reform process is done, in other words, they can’t get around to the fiscal year 2018 budget and the cuts therein.

After that, however, they can pass a new budget resolution for FY2018. It’s expected that this resolution will include reconciliation instructions for a deficit-neutral tax reform package. One way the package could be made deficit-neutral is if some of the cuts to mandatory programs like food stamps and Medicaid specified in Trump’s budget are included. Those cuts, as part of a reconciliation package, could not be filibustered.

Because the budget doesn’t require a president’s signature, it by itself doesn’t have the force of law. It only allows Congress to change its own rules, by including things like reconciliation instructions, and providing members of Congress the power to raise "points of order" to block any legislation that violates the budget resolution. This doesn't really matter in the House, because points of order can be waived by a simple majority vote. If you have the votes to pass a tax or spending change that violates the budget resolution, you have the votes to waive the point of order, making it a very minor roadblock.

But in the Senate, waiving a point of order requires 60 votes. That makes it a lot harder to pass bills that violate the pre-agreed-upon budget outline.

4) How big are the social program cuts included in this budget?

Massive. These are the largest cuts to social programs and the safety net to be proposed by a president in decades. For one thing, the budget includes all the cuts to health care for the poor that the American Health Care Act included; Robert Greenstein, the founder and president of the Center on Budget and Policy Priorities, told me, “No legislation enacted in recent decades cut low-income programs” by as much as that proposal does, “or even comes close.” You can see exactly which groups will be hurt by the Medicaid cuts and other provisions in the AHCA here.

Starting in 2020, rather than matching state Medicaid spending, the AHCA would give each state a set amount of money per person. The amount would grow from year to year according to the medical component of the Consumer Price Index, to account for inflation. That's essentially a cut, since the medical component of CPI is growing more slowly than Medicaid costs are expected to grow right now.

But the Trump administration decided it wasn't a large enough cut. Office of Management and Budget Director Mick Mulvaney, on a press call, explained that he wants to change the formula by which the per capita amount grows so that Medicaid spending rises more slowly. That would add billions more to the already massive cut the AHCA includes.

In the budget’s summary tables, “Repeal and replace Obamacare” is credited with $250 billion in savings over 10 years, slightly less than the $337 billion the first Congressional Budget Office report estimated (the lower amount makes sense, as subsequent changes to the law have made it save less) as the net effect of the bill’s tax cuts and benefit cuts. But “Reform Medicaid and the Children’s Health Insurance Program (CHIP)” is credited with $616 billion over 10 years, of which $610 billion comes from cuts to Medicaid.

And as with the AHCA, the budget would allow states to take a “block grant,” which would delink Medicaid funding from enrollment and allow states to impose waiting lists and other programs to deny access to health care through the program.

Also massive are the budget’s cuts to the Supplemental Nutrition Assistance Program, or food stamps, which amount to $191 billion over 10 years, or about a quarter of the program’s 10-year funding. SNAP is America’s safety net of last resort. It’s a cash-like voucher for which everyone of limited means, including people who can’t find work, is eligible. It’s the way that we ensure people don’t literally starve to death due to poverty.

Trump’s budget would slash benefits and add new work requirements to the program. SNAP already has some work requirements for able-bodied adults, especially ones without children; the latter can receive benefits for no more than three months per three-year period, unless they work at least 20 hours a week. Given the scale of the cuts being contemplated, either these requirements or other measures must kick one-quarter of beneficiaries off food stamps, or the program's average benefits will have to go down by 25 percent (which for a family of three would mean getting $3,438 a year rather than $4,584), or some combination of benefit cuts and enrollment declines would have to happen.

The budget also plans to introduce a state “match,” requiring states to contribute some of their own funds to SNAP in order to get federal funds. “We want to slowly phase in a state match,” Mulvaney said. Recalling his time as a state legislator, he said, “We didn’t have incentive to fix it. We want them to have skin in the game to make the programs better.”

The budget would also cut $72.5 billion over 10 years to programs for disabled people, including Social Security Disability Insurance (violating Trump’s promise to not cut Social Security benefits) and Supplemental Security Income, which provides support for desperately poor disabled and elderly people without enough earnings to qualify for poverty-level Social Security benefits.

The biggest disability cut is vaguely labeled, “Test new approaches to increase labor force participation,” implying that the budget will require that SSDI test a number of new approaches to get beneficiaries back into the workforce. It budgets $100 million a year in the first five years for testing, but then assumes that the approaches they choose will save more than $49 billion in the final five.

We don’t know what exact measures will be introduced to try to promote work. But many ideas that would increase work among disabled Americans — like increased access to long-term supports and services, subsidized jobs, more funding for vocational rehab programs, and a partial disability benefit available for those who can work part time — would cost more money to the federal government, not less.

Finally, the budget includes yet another big cut to the welfare block grant (which has been stuck at exactly $16.5 billion since the 1996 welfare reform, despite subsequent inflation), and a substantial cut of $40.5 billion over 10 years to the earned income tax credit and child tax credit, implemented by requiring all beneficiaries to have a Social Security number.

This may seem reasonable, but many undocumented parents claim those benefits for the sake of their US citizen children. Defending the provision, Mulvaney told reporters, “How do I go to someone who pays their taxes and say, ‘I want you to give money to someone working here illegally?’” The cuts are additionally notable because Speaker Ryan has claimed to support increasing the EITC, and some Republicans, like Marco Rubio, have called for expanding the child tax credit. Trump, by contrast, would only cut these programs.

5) What’s this about Trump’s magical economic assumptions?

Oh, right, those.

In the budget, Trump assumes that real GDP growth will reach 3 percent by 2020 and then stay there. In a press call, OMB Director Mulvaney castigated the Obama administration and the Congressional Budget Office for projecting 1.9 percent growth for the indefinite future.

“I think it’s sad that the previous administration was willing to admit they couldn’t get more than 1.9 percent,” Mulvaney told reporters. “I think it’s sad that the CBO assumes the same thing. That assumes a pessimism about America and its people and its country.”

What it actually assumes is that the US is an aging country, that we will not have enough immigrants to keep pace with older Americans leaving the workforce, and that there is a global slowdown in productivity across all rich countries. If the Trump administration were open to increasing immigration flows, that would be one thing. But their immigration crackdown actually makes this problem worse. As former Obama chief economist Jason Furman noted in a piece for Vox, the median estimate from both the CBO and the Fed's Open Market Committee is 1.8 percent; private forecasters are a bit more optimistic at 2.2 percent. No one thinks 3 percent is plausible, and there's no tax reform in the world so awesome as to close that gap.

Higher growth leads to higher tax receipts, which helps the Trump administration claim that their budget balances. In a memorandum, they estimate deficits under their budget assuming that growth continues at its current level rather than rocketing up to 3 percent. They find that in 2027, the deficit would reach $1.34 trillion. With their optimistic economic assumptions, they found that there would be a surplus. So Trump’s team is getting well over $1 trillion per year in new money to play with by making up overly optimistic growth numbers.

It gets worse, though. They’re double-counting those numbers. Treasury Secretary Steve Mnuchin has said that the tax reform plan the administration is pushing will be “deficit-neutral” only after you take into account their effect on economic growth. So he’s effectively using that growth to pay for tax cuts. But as the Washington Center for Equitable Growth's Greg Leiserson notes, he then turns around and uses the growth to also pay for deficit reduction in the budget.

Assuming growth that probably won’t materialize is one thing. To double-count it, and assume it pays for both deficit reduction and tax cuts, makes the problem twice as bad.

6) Okay, push comes to shove: will any of this become law?

Mark Wilson/Getty Images

It’s hard to say. The best bet is that the discretionary elements — increase funding for defense, dramatically cut funding for State and the EPA — will not become law in anything resembling their form in the budget. That’s because discretionary spending is handled through the appropriations process, and it’s filibusterable.

As the White House learned in the end-of-April government shutdown fight, the filibuster gives Democrats a ton of leverage on run-of-the-mill funding issues. In that dispute, Republicans tried to win a phaseout of Planned Parenthood spending and funds for a border wall, and got neither. The threat of a Democratic filibuster in the Senate was too powerful.

What’s more, a lot of this policy agenda is certain to engender vehement opposition from Republicans in the House and Senate. Sen. Lindsey Graham (R-SC) has already declared the cuts to the State Department “dead on arrival.” While Republicans on the Hill are generally eager to cut the EPA, some have said they think Trump's desired cuts go too far. Rep. Mike Conaway (R-TX), the chair of the House Agriculture Committee, condemned Trump's proposed cuts to the Agriculture Department. Sen. Rob Portman (R-OH) has recoiled at the Medicaid cuts in the House health care bill, suggesting he’d oppose further cuts in a spending package.

There are ways around the filibuster barrier. The most obvious is budget reconciliation, the special process currently being used to shepherd through the health reform package. That allows policymakers to pass legislation with only 51 votes in the Senate, evading a filibuster. But there are severe restrictions on what the process can be used for. In general, for reasons relating to which committees get “reconciliation instructions,” it likely can’t be used for regular appropriations, making programmatic cuts like the ones Trump wants for the Agriculture Department or State, or funding boosts like one for a border wall, untenable.

Most importantly, you can only use reconciliation once per fiscal year. The plan had been for the FY2017 reconciliation bill to be health care reform, and then FY2018 bill to be tax reform. Designing a tax reform package is extremely tough, with Republicans disagreeing about whether to adopt “border adjustment,” whether to let companies deduct interest payments on debt, whether to include the child care provisions Trump wants, whether to cap itemized deductions, and much, much more.

Adding drastic new budget cuts on top of that carries some advantages with it. The cuts could help pay for a tax reform plan that actually cuts revenue, rather than being revenue-neutral. But putting together a tax plan is a delicate enough endeavor without introducing a lot of contentious issues surrounding how much to cut Medicaid and food stamps and other “mandatory” programs, which the reconciliation process can cut. Using the process for cuts as well as taxes could make achieving each vastly harder. What’s more, budget reconciliation can’t be used to cut Social Security, including Social Security Disability Insurance, so that particular cut will inevitably need 60 votes in the Senate, which it’s doubtful it will receive.

All that being said: If 50 senators plus Vice President Mike Pence want the mandatory spending cuts to Medicaid, food stamps, and other programs for the poor included in this budget, they can probably get them. These are not programs that have the extensive middle-class constituencies backing them the way Social Security’s old-age insurance, or Medicare, or even the Affordable Care Act’s subsidies and regulatory protections do. They are programs meant to help America’s most vulnerable residents.

And Republicans could face a strong temptation to cut these programs if making a tax reform package that’s deficit-neutral proves difficult. It might be easier to cut food stamps than to limit access to the mortgage interest deduction, for example.

Trump’s budget identifies these programs as acceptable places for congressional Republicans to cut, programs that the White House would be okay with seeing slashed and gutted. That can, and will, affect congressional behavior, and barring a strong countermobilization by the programs’ defenders, it could result in meaningful cuts.

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