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White House's FY 2019 Budget Proposes Big Reductions in Nondefense Spending After a Spending Deal That Increases Deficits

02/12/2018

The White House unveiled its FY 2019 budget request this morning. Although it's incredibly unlikely that the budget request will become law, it does provide a window into the policy priorities of the Trump administration. Of course, the passage of the Bipartisan Budget Act, H.R. 1892, set the discretionary spending level for FY 2019 at $1.321 trillion -- $716 billion for defense discretionary and $605 billion nondefense discretionary. This level of spending is $153 billion higher than the pre-Bipartisan Budget Act spending caps.

The White House Office of Management and Budget (OMB) proposes a number of domestic policy changes, including the repeal of ObamaCare by the beginning of 2021, a new paid parental leave program, and an overhaul of the welfare system. The budget also calls for the elimination of the defense sequester, which will cost $777 billion over ten years, and a reorganization of the executive branch and a "two-penny plan" for nondefense discretionary spending, which would save $1.495 trillion if enacted over the course of the budget window. At least 22 federal agencies and programs would be eliminated if the budget plan were enacted without changes.

The topline budget request from the White House for FY 2019 is $4.407 trillion. OMB assumes that the economy will grow by 4.86 percent from 2018. (Note: While the economy should see solid growth, possibly getting the economy to 3.5 percent or 4 percent growth in FY 2019, between FY 2020 and FY 2025, OMB assumes annual economic growth of 5 percent, which is quite an assumption, to say the least.) Revenues are projected to be $3.422 trillion. Because the government continues to spend more than it receives in tax revenue, the budget deficit would be $985 trillion, roughly 4.69 percent of gross domestic product (GDP).

Over the ten-year budget window, FY 2019 through FY 2028, the White House's budget would increase defense discretionary spending and reduce nondefense discretionary spending. Under the current baseline, defense and nondefense discretionary spending are almost evenly split, representing 25 percent of all federal outlays.

Baseline Federal Spending Between FY 2019 and FY 2028

Under the FY 2019 budget proposal released today, total discretionary spending declines to 23.6 percent of all federal spending. Defense discretionary spending would see a boost while nondefense spending would be significantly reduced. Even with these significant reductions to nondefense discretionary spending, the budget would never balance.

Proposed Federal Spending Between FY 2019 and FY 2028 Under the White House's Budget Proposal

In a letter to congressional leaders from both parties, White House OMB Director Mick Mulvaney explains, "We believe that this level [of nondefense discretionary spending] responsibly accounts for the cap deal while taking into account the current fiscal situation. Spending at the levels included in the cap deal would add an additional $680 billion to the Nation's deficit over ten years above the FY 2019 Budget." He's not wrong about the "current fiscal situation," but it's hard to take it seriously because of the deal the president just signed into law last week that blew through the spending caps, setting a new baseline for discretionary spending. It's actually an insulting comment because of the spending caps deal.

If the budget were enacted, the budget deficit would decline by $3.6 trillion over ten years. The budget does some to address mandatory spending, which includes earned entitlement programs like Medicare and Social Security and welfare, but it really only proposes significant changes to welfare, such as adding work requirements.

This is problematic because entitlements are the real drivers of federal spending not only in the next ten years but over the long term. Programs like Medicare and Social Security will eventually crowd out other areas of the federal budget, including defense, if Congress continues to kick the can down the road. The passage of the Bipartisan Budget Act is an ominous sign because if Congress can't keep spending caps in place that were agreed to in the Budget Control Act of 2011, how will they possibly get anything done on entitlements, which is the far bigger issue.