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February 11, 2020

President's budget calls for cutting spending, extending tax cuts

The Trump administration released its FY 2021 budget proposal February 10, calling for steep cuts to spending on programs like Medicaid and food stamps and assuming extensions of Tax Cuts & Jobs Act provisions slated to expire after 2025.

Budget proposals are traditionally viewed as aspirational policy blueprints not likely to be processed as-is by Congress. The budget calls for $740.5 billion for defense discretionary spending and $590 billion for non-defense, which ignores the $626.5 billion non-defense spending limit agreed to in the Bipartisan Budget Act of 2019. It is widely expected that final decisions regarding FY 2021 spending would occur after the elections, which would require a continuing resolution to extend government funding beyond September 30 and into a post-election lame-duck session.

The FY 2021 Analytical Perspectives document again confirmed that the "adjusted baseline" in the President's budget "assumes permanent extension of the individual income tax and estate and gift tax provisions enacted in [TCJA] that are currently set to expire at the end of 2025." The provisions were not meant to be temporary, and only sunset to comply with budget reconciliation rules under which the legislation moved through the legislative process, the Administration said. Permanency would reduce receipts and increase outlays by $1.372 trillion over the 2025–2030 period.

Like last year's proposal, the FY 2021 budget proposes include providing the Treasury Secretary authority to regulate all paid tax return preparers and making it easier for IRS to correct clear taxpayer errors. With regard to energy provisions, the Budget proposes to repeal: (1) the qualified plug-in electric drive motor vehicle credit for vehicles placed in service after 2020; (2) the exclusion of utility conservation subsidies to non-business customers who invest in energy conservation measures; (3) accelerated (five-year) depreciation for renewable energy property; (4) the energy investment credit for property for which construction begins after 2020; and (5) the credit for residential energy efficient property placed in service after 2020.

Consistent with President Trump's call in the State of the Union Address for Congress to approve the Senate highway bill, the Budget proposes a "10-year surface transportation reauthorization plan that includes $75 billion in new spending above current law levels." A White House fact sheet said the budget reflects a total of $1 trillion in direct federal investment: an $810 billion, 10-year reauthorization of surface transportation programs; and an additional $190 billion in investments across a range of infrastructure sectors, including water and broadband.

Health care

President Trump is proposing a nine percent cut to the Department of Health and Human Services (HHS) as part of a fiscal 2021 budget, requesting $96.4 billion for the agency, which is down from the $105.8 billion enacted for fiscal 2020. The Centers for Disease Control and Prevention (CDC) would see a nine percent reduction to its budget, including a proposal to cut and consolidate funding for chronic diseases into a single block grant for states, although billions of dollars to fight infectious diseases would be preserved amid the Wuhan coronavirus outbreak. The budget also calls for reining in of Medicare and Medicaid spending, projecting that initiatives cracking down on fraud, abuse and wasted spending in Medicare and Medicaid could generate $478.5 billion and $51.9 billion in savings over the next decade, respectively.

The budget also outlines $597 billion in savings over 10 years from President Trump's "health reform vision," which includes efforts like improving health care cost transparency, ending "surprise" medical bills and rolling back of various regulations. It also includes $135 billion in savings over 10 years by enacting comprehensive drug pricing reform, explaining that it "includes an allowance for bipartisan drug pricing proposals." The administration notes its support for legislative efforts to improve the Medicare Part D benefit design, reduce out-of-pocket costs for seniors, and bring lower-cost generic and biosimilar drugs to patients through increased competition. The estimate lines up closely with a bipartisan drug pricing proposal from the Senate Finance Committee (S. 2543), which advanced out of the committee last summer.

Medicare savings include efforts to reform payment for Graduate Medical Education, modify payment to hospitals for uncompensated care, reform post-acute care and hospice payment, and pay hospital physician and outpatient departments at the physician office or "site neutral" rates. The budget also continues the Administration's push to strengthen work requirements in federally funded public assistance programs including Medicaid and Temporary Assistance for Needy Families (TANF) estimating $152.4 billion in savings from Medicaid work requirements across the next decade. Additional Medicaid savings in the budget are derived from continued cuts to Disproportionate Share Hospitals (DSH) and improved processes for recovering overpayments. Medicaid and CHIP investments to address opioids and mental health care include modifying the Medicaid Institutions for Mental Diseases (IMD) exclusions, extending the Community Mental Health Services Demonstration program, and extending CHIP and Medicaid coverage for inmates and postpartum women with substance use disorders.

The administration also highlights investments in several other high-priority areas for the administration such as kidney care, the opioid epidemic, mental health care, HIV, maternal mortality and morbidity, telemedicine and rural health care, influenza and health security, and more.


The budget includes a proposal, floated in similar form in past Trump and Obama budgets, to change the structure and increase the burden of premiums paid to the Pension Benefit Guaranty Corporation. The budget would impose a new Variable Rate Premium on multiemployer plans, as well as impose an exit premium on employers who leave multiemployer plans and stop making contributions. In addition, on the single employer plan side, the proposal would significantly increase the already-existing Variable Rate Premium, raising the per participant cap from $561 to $900, while freezing the flat-rate premium, pausing the indexation for three years. The total effect would be to increase premiums payments to the PBGC by $26 billion over 10 years.

Financial services

SEC and CFTC.The budget sets a funding level of $1.895 billion for the Securities and Exchange Commission (SEC), which is entirely funded through fees on securities transactions, for a four percent increase from the agency's FY 2020 level of $1.815 billion. The Commodity Futures Trading Commission (CFTC) would be funded at $304 million, which is a seven percent increase from last year's $284 million. The budget once again calls for legislation authorizing the CFTC to collect user fees to fund the commission's activities — including $77.5 million from brokers, futures and swaps dealers in fiscal 2021 — though Congress rejected that idea last year.

SEC Reserve Fund. The budget calls for eliminating the SEC's Reserve Fund, from which the Dodd-Frank Act allows the agency to spend up to $100 million annually, "in order to restore accountability to the American taxpayer." The budget documents say the reserve fund "has come to represent an extension of the SEC's regular appropriation rather than the emergency reserve it was intended to be." The SEC would be required to "divert reserve fund resources to the U.S. Treasury for deficit reduction" and would have to request any additional appropriations from the Congress beginning in 2022.

PCAOB Consolidation into SEC. The budget proposes to "consolidate the functions and responsibilities of the Public Company Accounting Oversight Board (PCAOB) into the SEC beginning in 2022," for a 10-year savings of $580 million. In justifying the change, the budget documents say "SEC is already charged with investigating federal securities law violations and has the authority to impose disciplinary action, including for public accounting firms that are also overseen by PCAOB. Consolidating these functions within SEC will reduce regulatory ambiguity and duplicative statutory authorities. SEC is also subject to discretionary appropriations, which ensures oversight and constraint over the fees assessed on market participants."

CFPB. The budget again proposes to restructure the Consumer Financial Protection Bureau (CFPB), limiting its mandatory funding in 2021, and provide discretionary appropriations beginning in 2022. The CFPB is currently funded through a draw from the Federal Reserve's budget and is not subject to the appropriations process. The budget "proposes legislative reforms to restructure and bring accountability to the CFPB" to "reinforce financial discipline, reduce unnecessary spending, and ensure appropriate congressional oversight by subjecting the CFPB to discretionary appropriations starting in 2022." The budget would also cap transfers from the Fed to the CFPB during 2021 to $485 million, "equivalent to the 2015 level."

G-Fee Increase for GSEs.Notably, the budget proposes to increase the guarantee fees charged by Fannie Mae and Freddie Mac, the government-sponsored housing enterprises (GSEs), from 0.10 to 0.20 percentage points, and would extend that increase through 2025, raising about $34 billion over the next 10 years. The budget documents note that the "G-fees" charged by the GSEs already have a 0.10 percentage-point add-on beyond the normal G-fee in effect through 2021 as part of the Temporary Payroll Tax Cut Continuation Act of 2011. "This proposal … would help to level the playing field for private lenders seeking to compete with the GSEs," according to the budget documents.

GSE Reform. The budget materials note that in September 2019, Treasury and HUD published plans with legislative and administrative recommendations to achieve the goals set forth in a presidential executive order. Those plans "made recommendations to define a limited role for the federal government in the housing finance system, enhance taxpayer protections against future bailouts, and promote private sector competition in the housing finance system." Treasury's plan also made recommendations for ending the GSEs' conservatorships. The budget documents say the Administration's preference "is to work with the Congress to enact comprehensive housing finance reform legislation. … [But] at the same time, the Administration believes that reform can and should proceed, and pending legislation, it will continue to support the administrative actions described in the plans. Any reform of the housing system likely will impact 2021 budget projections in ways that cannot be estimated at this time."

FSOC, OFR. The budget again proposes to change the funding structure that the Dodd-Frank Act established for the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR), in which the two agencies set their own budget levels, a situation that "circumvents congressional approval and oversight." Consistent with recommendations made by Treasury in its June 2017 report to the president on banks and credit unions, the budget proposes that "Congress establish funding levels for [OFR and FSOC] through annual appropriations bills. … OFR has taken administrative steps to further the goals in the Treasury report, including an organizational realignment to significantly reduce staffing and operating expenses to better focus OFR on its core mission to support FSOC and the financial regulatory community."

CDFIs. The budget proposes to zero out funding for the Community Development Financial Institutions (CDFI) Fund's discretionary grant and direct loan programs. "More than two decades ago, the CDFI Fund was created to jumpstart an industry at a time when CDFIs had limited access to private capital," according to the budget documents. "The CDFI industry now has ready access to the capital needed to extend credit and offer financial services to underserved communities, eliminating the need for federal grants. … The CDFI industry has matured, and these institutions should have access to private capital needed to build capacity, extend credit, and provide financial services to the communities they serve. … Today, there are over 1,100 Treasury-certified CDFIs — including loan funds, community development banks, credit unions, and venture capital funds — active in all 50 states and the District of Columbia. The Budget proposes to eliminate funding for the Fund's four discretionary grant and direct loan programs, because continued over-reliance on Federal funds hinders long-run sustainability of this now mature industry." The budget would, however, maintain funding for administrative expenses to support ongoing CDFI Fund program activities, and would extend CDFI's Bond Guarantee Program "with reforms to increase taxpayer protections."

FinCEN and TFI. The budget proposes $127 million for the Financial Crimes Enforcement Network (FinCEN)to prevent and address financing of terrorism, money laundering and other crimes. "These resources would enhance FinCEN's protection of data collected under the Bank Secrecy Act, which would increase its value to law enforcement agencies, and expand its efforts to combat emerging virtual currency and cybercrime threats." The budget also seeks $173 million for Treasury's Office of Terrorism and Financial Intelligence (TFI), which targets terrorists, rogue regimes, human rights abusers and other illicit actors by denying their access to the financial system. That number represents a 40% increase from fiscal 2017 funding levels, "to strengthen TFI's data analytics, intelligence, sanctions, and enforcement capabilities."

Terrorism Risk Insurance. The fiscal 2021 budget's baseline includes the estimated federal cost of providing terrorism risk insurance. The budget documents say that "using market data synthesized through a proprietary model," the Administration projects annual outlays and recoupment for the Terrorism Risk Insurance Program (TRIP). While the budget doesn't forecast any "specific triggering events" it includes estimates representing the weighted average of TRIP payments over a full range of possible scenarios, "most of which include no notional terrorist attacks (and therefore no TRIP payments), and some of which include notional terrorist attacks of varying magnitudes. On this basis, the Budget projects net spending of $256 million over the 2021–2025 period and $394 million over the 2021–2030 period."


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