All of Washington seems to be in cardiac arrest over the news reports late last week that President Donald Trump is planning a budget with $10 trillion of budget cuts over the next decade.
We can only hope and pray that the report is accurate. Let’s also hope that Mr. Trump has the backbone to stick with this plan to staple the stomach of the federal government. This is an enterprise that has been borrowing $1 trillion a year for the past decade and is expected to continue to do so for years and decades to come. The national indebtedness will soon exceed $20 trillion and everyone in Washington is denial about this mestastiszing cancer cell rather than ordering radiation therapy before it kills off the economy.
Why is everyone so shocked about this story that from The Hill newspaper that Mr. Trump wants to take a hacksaw to the overgrown weeds in the federal budget? Time for a chill pill.
Yes, even in Washington $10 trillion is a whole lot of money. It’s roughly equal to the entire amount of debt that was accumulated by Barack Obama in eight years.
The scaremongers say that cuts of this magnitude would have devastating effects on social programs and vital federal services. Wrong. Even with this overdue downsizing, the federal government would still grow in size over the next decade. It just wouldn’t grow by nearly as fast it is projected to if nothing at all is done.
Here are the parameters we are talking about. First, over the next decade the United States government is expected to spend close to $50 trillion. So Mr. Trump would cut one in five dollars of expected spending.
Second, the $10 trillion are the gross spending cuts. Over this same time period Mr. Trump wants to add as much as $1 trillion in infrastructure spending (a waste of money) and there is talk of more than $1 trillion in added defense spending. Sen. John McCain recently called for $500 billion in added defense spending in just Mr. Trump’s first term.
He is also suggesting one of the biggest tax cuts in history, with tax rate reductions for large and small businesses and for families. This is estimated to reduce revenues by between $2 and $4 trillion. So about half the spending cuts are required simply to offset the new spending and the tax cuts. The rest of the government downsizing is to get back to a balanced budget – one of Mr. Trump’s campaign promises.
Before folks stop taking swan dives off the 14th Street Bridge, I keep wondering if the shock jocks in the media will ever figure out that Donald Trump is a negotiator. He will (hopefully) call for these big cuts as his opening fiscal bid. That’s a smart way to alert Congress that there really is a new fiscal sheriff in town. Don’t be surprised if in the end Congress moans we can’t possibly swallow all of these cuts, so, Mr. President, we will have to slash your savings in half.
OK, deal.
Last year the official federal auditors at the Government Accountability Office reported more than $150 billion a year in fraudulent and/or erroneous entitlement spending through Social Security, Medicare, Medicaid, food stamps, and other benefit programs. Yet no one ever does anything to reduce a fraud rate of more than 10 percent. No one does anything about this rampant cheating and these are the kinds of savings Mr. Trump should make a priority.
What is most encouraging about this policy proposal is that it marks a welcome U Turn in economic philosophy from Mr. Obama to Mr. Trump. Mr. Obama’s economists believed that government spending and debt were a “stimulus” to the economy. The more the better. It was a tooth fairy philosophy that was put to the test and delivered the worst economic recovery in 75 years. Wages didn’t budge and fell for many workers after inflation. We learned once again and hopefully forever that government spending doesn’t stimulate growth, it retards it. Just ask Japan or Venezuela. Every dollar the government doesn’t spend, tax, or borrow is a dollar businesses and families can spend or invest themselves. What Mr. Trump is really proposing is a $10 trillion stimulus to the private economy. It’s about time.