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Trump ‘preparing to impose sweeping budget cuts if he wins 2020 election’

After lavish four years in office, US president to strive unconvincingly for restraint

Damian Paletta
Saturday 20 July 2019 21:33 BST
If re-elected, Donald Trump looks set to push new fiscal agenda after confusing first term
If re-elected, Donald Trump looks set to push new fiscal agenda after confusing first term (Chip Somodevilla/Getty)

Donald Trump has instructed aides to prepare for sweeping budget cuts if he wins a second term in the White House, five people briefed on the discussions said, a move that would dramatically reverse the big-spending approach he adopted during his first 30 months in office.

Mr Trump’s advisers say he will be better positioned to crack down on spending and shrink or eliminate certain agencies after next year, particularly if Republicans regain control of the House of Representatives.

But this second-term ambition is already seeding confusion about how the White House should approach the current slate of negotiations, in which some conservatives want Mr Trump to push for spending restraint.

Instead, Mr Trump is advocating swiftly lifting the federal debt ceiling, which would allow for more spending and borrowing.

Mr Trump, who was once a fierce promoter of refusing the raise the debt ceiling without winning concessions, said the opposite on Friday, telling reporters that “it’s a sacred element of our country. They can’t use the debt ceiling to negotiate”.

US Treasury Secretary Steven Mnuchin has said the debt ceiling needs to be increased by early September to avoid a potentially catastrophic default.

That puts enormous pressure on Congress to act, because lawmakers leave at the end of next week for the remainder of the summer.

Mr Mnuchin has forged several parts of a new budget agreement with US House Speaker Nancy Pelosi, but the talks bogged down in recent days after other Trump advisers sent Democrats a request for $150bn (£120bn) in spending cuts.

With Mr Mnuchin pushing for a deal and the other advisers, largely acting chief of staff Mick Mulvaney and acting budget director Russell Vought, seeking big cuts, the White House has lacked a consistent argument during the debates, something that is likely to spill into a second term if Mr Trump is re-elected.

Even some Republicans appear exasperated over the differing views.

Senate Appropriations Committee Chairman Richard Shelby told reporters that Mr Mnuchin has been the “voice of reason” inside the White House and that Mr Trump would benefit from focusing on the treasury secretary’s advice.

“I think he should listen to the secretary,” Mr Shelby said.

Democrats have seized on this inconsistency and dug in, and they appear unlikely to capitulate during the current debate, in part because Mr Trump has not signalled a willingness to back up demands from Mr Vought’s office for the spending cuts.

Now, neither aides nor Congress know precisely how hard Mr Trump is willing to fight for budget cuts either this week or during the second term.

Muddying matters further, Mr Trump has not instructed aides as to how sweeping he wants future budget cuts in his second term to be.

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For example, he has not told aides whether he will be open to significant cuts to Medicare, one of the government’s costliest programmes.

Mr Trump promised during the 2016 campaign that he wouldn’t cut Medicare, Medicaid or Social Security. He abandoned that pledge for Medicaid but has largely held to his commitment not to reduce Medicare and Social Security benefits, despite pressure from some advisers.

His apathy towards cutting spending has helped drive the deficit to about $1tn (£800bn) this year, a sharp contrast to the GOP demands for a balanced budget during the Obama administration.

Mr Trump himself has mischaracterised the government’s fiscal problems on numerous occasions, alleging that the Obama administration is to blame for rising debt levels.

The deficit did widen, and then contract during the Obama administration, in part because of the government’s response to the financial crisis.

But the deficit has expanded greatly during the Trump administration, adding $3tn (£2.4tn) to the debt since he took office. It is expected to continue growing through the next decade and beyond.

White House officials have not stuck to a consistent approach in dealing with the budget, in part because of Mr Trump’s unwillingness to fight for cuts.

Several months ago, White House officials released a budget plan that would have slashed spending at multiple agencies.

But they jettisoned that blueprint during talks with lawmakers and have agreed to increase spending markedly in the next two years. They were still haggling over specifics of the deal on Thursday afternoon, however.

The internal White House split over how hard to push for budget cuts is a precursor for what aides expect will be a central battle if Mr Trump wins re-election.

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Mr Trump’s aides have frequently called for reducing the deficit, only to see Mr Trump reverse course and call for more spending throughout the budget on things such as military programmes, a new wall along the US-Mexico border and bailout funds for farmers.

The 2017 tax cut has also added to the deficit, according to budget experts, and will end up costing the government more than $1tn (£800bn) over 10 years.

Some Republicans have said Mr Trump’s refusal, so far, to pursue big changes to entitlement programmes such as Medicare and Social Security have made it nearly impossible for him to fix the budget.

“They have never proposed serious entitlement reforms, and he has said quite clearly that he won’t,” said Douglas Holtz-Eakin, a Republican and former Congressional Budget Office director. “Until they do, they are not serious about anything.”

There are a number of reasons US debt levels are projected to keep climbing, and some of the biggest ones have to do with demographics that political leaders can’t control. Medicare and Social Security primarily benefit older Americans, and thousands of new people qualify for these benefits each day as Americans age into the benefits.

Budget experts have said the best way to control costs on these programmes would be to phase in changes over time to avoid abrupt disruptions in benefits.

But policymakers from both parties have frequently avoided such adjustments, worried about the political blowback from seniors.

Mr Trump has also received mixed signals from Capitol Hill. Former House speaker Paul Ryan was a big proponent of spending cuts but recently left office.

Meanwhile, Senate Majority Leader Mitch McConnell has advised Trump to postpone any spending fights until after the 2020 elections, saying conflict could turn voters away from Republicans.

Several conservative lawmakers expressed scepticism that a push to reduce deficits could gain traction in Congress, even if the Trump administration throws its weight behind such an effort.

Senator Ron Johnson said he doubted Republican lawmakers would move legislation to meaningfully close the deficit.

“My experience around here about cutting the budget is that it’s like going to heaven: Everyone wants to go, but nobody is quite ready to take the trip,” said John Neely Kennedy, a member of the Senate Appropriations Committee. “I’ve heard no discussion about this. None.”

Mr Trump promised during his 2016 campaign to eliminate the government’s debt after eight years in office, a pledge top advisers later said was a mistake.

But Mr Trump has not only failed to eliminate the $19tn (£15.2tn) in debt he inherited when he was sworn in; he also authorised multiple agreements that made the debt much larger.

His aides have proposed budget cuts numerous times during his first term in office, only to have Mr Trump back away and pursue spending increases instead.

These spending increases, combined with the 2017 tax cut law, have added $3tn (£2.4) to the debt during Mr Trump’s first term in office.

The US government spends more money than it brings in through revenue, and that gap is referred to as the “deficit”. The government borrows money to cover this gap, and it does this by issuing debt.

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“It’s an urgent problem, and the longer you wait to fix it the harder it will be,” said Michael Peterson, chairman and chief executive of the Peter G Peterson Foundation, which advocates deficit reduction, citing the growing price tag on debt interest payments.

Mr Trump has said these measures were necessary to help grow the economy and rebuild the military, but they have also added markedly to the debt.

White House officials, however, have disputed that the tax cuts have led to lost revenue. They cite figures that show tax revenue is higher this year than last year, but budget experts say the revenue collected this year has fallen short of projections and not accounted for the steep tax cuts.

Particularly troubling to budget experts is the steep drop in taxes paid by businesses under the law, which lowered the corporate tax rate from 35 per cent to 21 per cent.

The year before the tax law, the United States collected about $285bn (£228bn) from corporate taxes – a number that dropped by more than 30 per cent last year, according to the Bipartisan Policy Centre, a nonpartisan organisation.

So far, companies have paid even lower levels of corporate taxes this year compared with 2018, with 60 Fortune 500 companies paying no federal taxes at all, according to the Institute on Taxation and Economic Policy, a left-leaning think tank.

Republican politicians and the Trump administration predicted during the debate over the 2017 tax law that the legislation would increase federal revenue by spurring additional economic growth, and the Treasury Department released a one-page analysis projecting the law would cut the deficit by $300bn over 10 years.

The economy has grown faster since the tax cuts went into effect, but it has already shown signs of slowing this year.

Mr Trump and other White House officials have predicted that the tax cuts could lead to a loss in revenue in the first few years but would eventually lead to a big increase in revenue, something budget experts have disputed.

Washington Post

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