FY19 Budget Request: The Big Picture

February 14, 2018

President Trump on February 12 submitted a budget request that called for $4.4 trillion in federal spending in 2019, offset by $3.4 trillion in tax and other receipts, leaving a deficit of $984 billion. But the budget was already outdated on the day it was released – while the FY 2019 budget was at the printers, Congress passed and the President signed a law allowing an extra $295 billion in appropriations over the 2018-2019 biennium. So the real deficit is expected to be around $1.2 trillion under the President’s plan.

The numbers in the plan do incorporate the massive tax cuts signed into law on December 22, and in a nod to political reality, the adjusted budget “baseline” used by the Office of Management and Budget does assume that Congress will extend most of the tax cuts that expire periodically throughout the next ten years (the expirations were necessary to keep the total ten-year cost of the tax cut bill below $1.5 trillion). The thinking is that Congress and the President surely won’t allow a scheduled tax increase to take place and will keep things at the status quo.

But this nod to political reality on the tax side only serves to underscore how outdated and unlikely the spending assumptions in the budget are. Total appropriations for non-defense activities (including war support, emergencies, and disaster relief) totaled $586 billion in fiscal 2017. The new budget assumes that will drop to $545 billion in 2018 and $483 billion in 2019 and then continue to drop by an average of 2.5 percent per year in every year after that.

Reality is trending the other way. It was always unlikely to assume that any Congress will agree to perpetual annual cuts in domestic spending. But the budget deal signed by the President last Friday allows non-defense appropriations hundreds of billions of dollars higher than those assumed in the Trump budget in 2018 and 2019 (which are not reflected in the budget numbers because it happened after the budget had gone to press). And if it is logical to assume that Congress will probably act to prevent hundreds of billions of dollars in scheduled tax increases, it is equally logical to assume that they also won’t allow hundreds of billions of dollars in scheduled spending cuts to take effect, either. (Google “Medicare Strategic Growth Rate” for an example of the latter.)

The budget assumes $1.5 trillion in savings over ten years from cuts below the baseline to discretionary spending when the reality is likely to be spending significantly above the baseline. And the budget also assumes $1.8 trillion in mandatory spending cuts and some tax receipt changes, most of which revolve around Obamacare repeal and other health fixes which can’t be considered likely, either. (The $199 billion outlay cost of the Administration’s $200 billion infrastructure initiative is part of that net $1.8 trillion mandatory/receipt total, meaning that the net mandatory spending cuts and tax changes are a net $2.0 trillion without the infrastructure proposal.) (See Summary Table S-2 in the Budget Message for details.)

All of which is to say that the spending assumptions in the “big picture” of the 2019 budget are even more unrealistic than usual. And we don’t have the economics background to judge how realistic the GDP growth, inflation and interest rate assumptions in the budget are (see Summary Table S-9), but the assumptions about taxes, spending and deficits as a share of GDP of course depend on those assumptions, so be wary of those as well.

FY19 Discretionary Spending Overview. When the Administration prepared its 2019 budget, the Budget Control Act spending caps on discretionary appropriations were $562 billion for defense and $530 billion for non-defense. OMB proposed to do the same basic thing it proposed last year – beef up defense by $65 billion and reduce non-defense by roughly the same mount, so the overall total stayed about the same. Therefore, the numbers in the budget documents reflect discretionary totals of $627 billion for defense and $465 billion for non-defense.

Then, on February 9, President Trump signed into law the two-year budget deal that increased the 2019 spending caps to $647 billion defense and $597 billion non-defense. So OMB staff worked the weekend to come up with a budget Addendum that was also sent to the Hill electronically as the print version was delivered yesterday.

OMB’s decision-making on the defense side was easy – they just swapped $20 billion in Pentagon funding that was already requested in the exempt-from-caps Overseas Contingency Operation (OCO) work-around and put it under the cap.

For the non-defense side, the Addendum proposed $74.8 billion in net spending increases and proposed to leave $57.2 billion in room under the non-defense cap, unspent.

Defense Non-Def. Total
FY19 BCA Caps As Of February 8, 2018 562.1 530.3 1,092.5
Originally Proposed Administration Cap Changes +64.9 -65.3 -0.5
Original Administration Budget Request 627.0 465.0 1,092.0
Extra Spending Subject to Caps in Addendum +20.0 +74.8 +94.8
Space Below Caps Not Used in Revised Budget 0.0 57.2 57.2
FY19 BCA Caps As of February 9, 2018 647.0 597.0 1,244.0

The $74.8 billion in net spending increases means that some of it – $17.1 billion – is not new appropriations but instead represents getting rid of recurring spending gimmicks that serve to offset new appropriations but don’t really save any money. (OMB proposes, on the last page of the Addendum, to enact a statutory ban on such gimmicks, known as CHIMPs (Changes In Mandatory Programs), which would also mean that the Appropriations Committees could never ever again rescind highway contract authority balances held by states outside obligation limitations.)

OMB also did for non-defense what it did for defense and shifted $12.3 billion of State Department money already requested as part of the OCO cap exemption and put it under the non-defense cap. And they proposed to shift $11.2 billion of HHS funding that had been requested as part of the mandatory budget to the discretionary side of the budget.

The Addendum then requests $33.6 billion in new FY19 appropriations that were not previously requested, almost half of which was to combat the opioid abuse problem. The remainder was distributed widely, including $720 million for the Coast Guard so they can buy their new polar icebreaker all at once (instead of in installments), and $300 million for the USDOT Maritime Administration so they can buy two new training vessels for state maritime academies in New York and Massachusetts.

The addendum also proposes an extra $397 million for the EPA’s water infrastructure state revolving funds (SRFs) but it does not specify how much of the extra money should go to the Clean Water Act SRF and how much to the Safe Drinking Water Act SRF.

Reminder: all budget documents can be found at www.enotrans.org/fy19.

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