President Trump’s budget for 2018 presents a plan to achieve a balanced federal budget in ten years, by 2027. This is a highly desirable goal but there is much skepticism about whether or not his budget is realistic, see here and here.
- Fiscal restraint is a common sense necessity, and is not austerity. Our public debt (on which we pay interest) now stands at 77% of GDP, the highest since WWII, and will continue to increase without major changes in public policy. Right now the debt is almost “free” money because interest rates are so low. As interest rates inevitably go up in the near future, interest payments on the debt will skyrocket and become a huge drain on our federal budget and make annual deficits even worse than they already are.
- 3% annual GDP growth, as assumed in the Trump budget, is almost certainly too optimistic. However the Trump Administration is on track to achieve significant deregulation and averaging 2.5% growth over the next ten years is doable.
- Insufficient entitlement reform is a big drawback for the budget. It will be very difficult, essentially impossible, to achieve and sustain a balanced budget without modifying Social Security and Medicare to make them self-financing. Turning Medicaid into a block grant program to the states would finally put Medicaid on a sensible budget.
- Requiring able-bodied welfare recipients to work is a good idea and is the basis for cutbacks in social welfare programs.
- The Departments of State, Interior, Education and Justice should be able to absorb cutbacks and operate more efficiently.
Conclusion. There are many good initiatives built into the Trump budget. Unfortunately there are also some invalid assumptions and glaring omissions. It does not represent a bona fide plan to balance the budget in ten years but at least it recognizes the importance of doing so.