The President's 2018 Budget Request
- The president’s budget includes defense funding increases and nondefense funding reductions. Significant mandatory spending reforms are included, but not for the two largest mandatory programs, Medicare and Social Security.
- The budget request balances in 2027, with a $16 billion surplus.
- It predicts economic growth will be 3 percent in the out-years; CBO’s projection is 1.9 percent.
Today the Office of Management and Budget released the administration’s fiscal year 2018 request. In total, there is $3.6 trillion in deficit reduction from the baseline from 2018 - 2027. The budget balances by the end of the budget window due to this deficit reduction, combined with more tax revenue gained through higher economic growth. The Senate Budget Committee has a detailed summary of the budget.
Proposed defense budget authority is $668 billion in fiscal year 2018, with nondefense budget authority of $479 billion in 2018. This funding includes “overseas contingency operations” and other spending not subject to spending caps. The only departments for which funding increases are proposed in fiscal year 2018 are Defense, Homeland Security, and Veterans Affairs.
The budget proposes a “two-penny plan” to reduce the nondefense spending cap by two percent per year and offset defense spending increases. For example, the nondefense cap will go from $462 billion in 2018 to $367 billion in 2027. The Defense cap will go from $603 billion in 2018 to $727 billion in 2027.
The budget includes mandatory savings, but does not affect Medicare or Social Security’s old-age program. These two programs are projected to continue to grow as a percentage of the economy. Medicare’s size as a share of the economy would increase by more than one-fifth, going from 3.1 percent of GDP in 2017 to 3.8 percent in 2027. Social Security would increase by nearly 15 percent as a share of the economy, going from 4.9 percent of GDP in 2017 to 5.6 percent in 2027. In nominal dollars, Social Security increases by more than 40 percent and Medicare more than doubles from 2018 to 2027.
There are significant mandatory savings in other programs in this budget. Mandatory savings include reforms in Medicaid ($610 billion in savings over 10 years), the Children’s Health Insurance Program ($5.8 billion), Supplemental Nutrition Assistance Program ($191 billion), and program integrity measures for the Earned Income Tax Credit and Child Tax Credit ($40 billion).
Economic Growth and the Long Term
The budget predicts that tax cuts and other pro-growth measures will lead to growth that hits 3 percent in 2021 and remains at 3 percent through 2027. In comparison, CBO projects annual average growth of 1.9 percent from 2021-2027.
With this strong growth, the budget picture would significantly improve. Tax receipts would eventually rise to $5.724 trillion in 2027 (CBO projects $5.14 trillion in 2027). Spending would total $5.708 trillion in 2027 (CBO projects $6.548 trillion in 2027). The budget’s balance goes from a deficit that is 5 percent of GDP in 2027 under the baseline, to a surplus of 0.1 percent under the president’s budget. Debt held by the public, projected in 2027 to be 88.9 percent of GDP under the baseline, shrinks to 59.8 percent under the president’s budget.
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