FederalTaxes & SpendingTrump 2021 Budget Plan to Reduce Deficits by $4.6 Trillion, Balanced Budget by 2035

The plan, outlined by OMB Acting Director Russ Vought, amounts to $4.8 trillion with a 0.3 percent increase in defense spending to $740.5 billion and a 5.1 percent decrease in non-defense discretionary spending to $590 billion. 

It takes a significantly different approach from the budget deal the president signed off on last year which busted the Budget Control Act of 2011’s (BCA) spending caps by $323 billion.

Under Trump, federal spending has increased by $600 billion in three years. 

Former President Barack Obama, meanwhile, oversaw a $500 billion increase during his eight years and George W. Bush facilitated an increase of $1.5 trillion throughout his tenure. The BCA is largely responsible for the relatively limited spending under Obama — cutting the growth of discretionary spending through a process known as sequestration.

This budget proposal, however, includes a $4.5 trillion total deficit reduction (the largest proposed deficit reduction ever by an administration) and would balance by 2035. Based on the proposal, the budget plans for a $1 trillion deficit in 2021 — shrinking to $200 billion by 2030.

The president’s budget is not binding since Congress has the oft-cited — but infrequently leveraged — “power of the purse” over the rest of the federal government. Rather, the president’s budget serves as a hand to guide the discussion as it unfolds.

Of the $4.4 trillion in spending reforms, $1.9 trillion consists of discretionary spending cuts, $2.1 trillion occur from mandatory reforms, and $400 billion comes from savings on interest.

Some of the discretionary reductions include cuts of 37.3 percent to the Department of Agriculture; 26.5 percent to the Environmental Protection Agency; 15.2 percent to the Department of Housing and Urban Development; 8.9 percent to Health and Human Services; 8.1 percent to the Department of Energy; and 7.8 percent to the Department of Education.

Two notable increases are 11.9 percent for NASA and 3 percent for the Department of Homeland Security.

Other savings include projections made on entitlements — specifically 7 million Americans moved off food stamps and 10 million moved off entitlements overall through the plan’s duration. Much of these are not explicit “hard cuts” but rather projections based on economic growth lifting individuals out of the need for entitlements.

The Office of Management and Budget’s (OMB) fiscal projections include a 3.1 percent assumed economic growth rate for 2020 and an average of 3 percent through the lifespan of the budget proposal.

A significant contributor to this projection is the economic growth spurred by the Tax Cuts and Jobs Act of 2017 which are set to expire in 2027. The budget proposal would make those permanent.

Other savings on entitlements come from projected reforms such as price transparency for hospitals and for pharmaceutical drugs.

The budget does include a first-ever chapter on eliminating “waste, fraud, and abuse.” That was an often-repeated campaign slogan for the president in 2016. A Forbes article highlights some of the most egregious examples of this wasteful spending.

The direction to cut wasteful spending centers on eliminating year-end “use-it-or-lose-it” spending, which amounted to $97 billion spent by federal agencies in the last month of FY2018. 

Some of these expenditures include $9.8 million on workout equipment; $4.6 million on lobster and crab; $300 million on motor vehicles; $462 million on public relations services; and $491 million on office furnishings.

In the last month of FY2018, the Pentagon spent over $60 billion.

Also, in 2018, Forbes notes $140 billion was doled out in mistaken payments. For its part, Social Security accounted for seven percent of that with $10 billion in overpayments. The bulk of that $140 billion came from Medicare/Medicaid which improperly doled out $85 billion in benefits — nearly 80 percent of which were overpayments.

Much of the savings attributed to these entitlement programs consists of eliminating such waste.

According to OMB, the plan accounts for $200 billion in receipts — a key component of which comes from increasing the Federal Employee Retirement System (FERS) match rate to a 50/50 ratio between the employee and the employer (the government).

When talking about government spending, one must always bear in mind that the vast bulk of spending consists of non-discretionary spending — which includes mandated entitlement spending on programs such as Social Security, Medicare, and Medicaid. Non-discretionary spending cannot be adjusted through the typical appropriations process. It must be done through direct legislation.

While this budget plan is essentially a wish-list, it does represent a serious marker at achieving some semblance of fiscal solvency by the Trump administration.

Editor’s Note: An earlier version of this article misstated the deficit reduction as $4.5 trillion when it is actually $4.6 trillion.