Budget focuses spending on defense, border security, opioids and drug prices, while acknowledging that deficit will not be eliminated in 10 years

The White House on February 12, 2018, released a $4.4 trillion fiscal 2019 budget submission that, unlike last year's budget blueprint, does not foresee bringing the federal budget into balance within the 10-year budget window. Given the effects on revenue brought by last year's tax reform law, together with last week's bipartisan agreement to lift spending caps for two years, the FY19 budget forgoes the previous focus on the deficit in favor of using tax and spending policy to boost economic growth.

The White House has posted the FY19 budget documents here.

Administration's spending priorities. The budget submission, titled "Efficient, Effective, Accountable: An American Budget," cites the urgency of spending more in areas such as defense (which would receive a 13% boost over fiscal 2018 levels), as the Administration seeks "resources to enhance missile defense and to build … . planes, tanks, warships, and cyber tools," while providing "funds to increase the size of our armed forces and to give our men and women in uniform a well-earned pay raise." The budget also prioritizes border security, including increased immigration enforcement and the construction of a wall along the southern border; and combating the epidemic of opioid addiction. The budget includes $200 billion in infrastructure spending over 10 years, mostly in the form of competitive grants intended to leverage additional private investment in roads and bridges. The Administration also proposes "new strategies to address high drug prices and increase access to drugs by addressing perverse payment incentives and exposing drug companies to more aggressive competition," according to the budget document, which also highlights the priority of promoting "formal apprenticeships" and making "important investments in science, technology, engineering, and mathematics (STEM) education in K-12 schools."

$450 billion deficit seen in 2027. The budget's $984 billion prediction for next year's deficit is almost double what last year's budget had projected for fiscal 2019. The blueprint estimates adding at least $7 trillion to the debt over 10 years, predicting the government will add a combined $2 trillion in debt in 2019 and 2020 alone, with a $450 billion deficit in 2027. By comparison, last year's "skinny budget" submission projected that its tax and spending proposals would lead to a $16 billion budget surplus in 2027.

Tax receipts lower. The president's FY 2019 budget estimates that tax revenue will decline steeply, reflecting the enactment of last year's Tax Cuts and Jobs Act. The budget predicts tax revenue will be $314 billion lower in 2018 than was estimated last year, almost $400 billion lower in 2019, and $200 billion lower as far out as 2027 than last year's projection. The budget estimates that revenues will constitute 16.3% of gross domestic product in 2019 — the lowest level since 2012.

Proposed spending cuts. The budget presumes deep cuts to mandatory programs such as Medicare and Medicaid. A message accompanying the Office of Management and Budget's (OMB's) 200-page document describing "Major Savings and Reforms" says the budget blueprint "includes both discretionary and mandatory savings proposals that work to bring federal spending under control, and reduce deficits by $3.6 trillion over the [10-year] budget window. These proposals encompass an aggressive set of actions to redefine the proper role of the federal government and curtail those programs that fail to efficiently and effectively deliver promised outcomes to the American people." For example, the budget presumes cuts to Medicare over 10 years of more than $550 billion, while cutting $250 billion from Medicaid over the same period by converting the program to a block grant to the states and cutting $218 billion from the Supplemental Nutrition Assistance Program for low-income people, also known as food stamps. Such entitlement cuts would be difficult for Congress to approve even if it relied on the mechanism of budget reconciliation, which allows legislation to pass the Senate with only 51 votes. The budget also presumes savings of $675 billion over 10 years from repealing the Affordable Care Act — something that Congress failed to do in 2017 despite using the reconciliation process.

Budget 'addendum' from OMB. In an addendum to the budget in the wake of last week's enactment of the Bipartisan Budget Act, OMB Director Mick Mulvaney says "Congress reached a bipartisan agreement … to significantly raise the defense and non-defense discretionary spending caps in FY 2018 and FY 2019." While the administration welcomed the additional spending authority for defense, Mulvaney says that "given the current fiscal situation, the Administration is not proposing a budget at the new non-defense caps. The Administration does not believe these non-defense spending levels comport with its vision for the proper role and size of the federal government. However, we believe it is prudent to lay out the Administration's roadmap for how to account for these higher non-defense spending levels in a responsible manner."

Mulvaney wrote that the addendum to the budget submission "includes additional funding for a limited set of Administration priorities, but notably, it also proposes to use higher spending caps as an opportunity to fix some longtime budget gimmicks that the Congress has used to circumvent the spending caps and add billions to the Nation's deficits." The administration's priorities for the additional non-defense funds include, broadly, spending more on opioids and mental health; the National Institutes of Health (NIH); job training; education; housing and NASA. The "budget gimmicks" that OMB lists for elimination are: 1) the use of changes in mandatory programs (CHIMPs) — with accompanying changes in budget scoring rules — because "they push the availability of funding from one year to the next, or rescind money from a program that no one actually expected would be spent," and 2) phasing out Overseas Contingency Operations (OCO) funding at the State Department and U.S. Agency for International Development (USAID).

IRS / tax provisions. Notably, the budget provides that because last year's tax law brought about "the most significant changes to the nation's tax code in more than 30 years," investing in the modernization of Internal Revenue Service (IRS) systems would help make the implementation of tax reform successful and tax filing simpler. The Budget proposes $11.1 billion in base funding for the IRS, as well as additional funds for new and continuing investments to expand and strengthen the enforcement of tax law. The Administration also proposes to establish a new adjustment to the discretionary caps for IRS program integrity activities starting in 2019. The more than $300 million in additional funding for 2019 will fund new and continuing investments in expanding and improving the effectiveness and efficiency of the IRS's tax enforcement program, the budget said. The Administration also proposes increasing the oversight of paid tax preparers, providing that the Secretary of the Treasury has the authority to regulate all paid tax return preparers.

Reaction. House Speaker Paul Ryan (R-WI) said the budget blueprint "builds on last week's budget agreement by focusing on rebuilding our national defense and promoting a stronger economy." But Senate Minority Leader Charles Schumer (D-NY) said in a statement, "If Americans want a picture of who President Trump works for, the combination of the tax bill and this budget make it crystal clear. He's for the rich and powerful at the expense of the middle class."

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