The Daily Combover - May 23, 2017

As Trump arrived in Rome early this morning, back home at the White House, his regime was finalizing their 2018 budget proposal. The mammoth $4.10 trillion proposal would be the largest budget on record if fully funded (President Obama's $4.15T budget for 2017 was not fully funded).

Let's dig in and see where the money goes. Basing the new numbers off of current year allocations, here are the basic general cuts:
$11.5 billion (29.1%) cut to the State Department
$9.2 billion (13.5%) cut to the Department of Education
$6.2 billion (13.2%) cut to the Department of Housing and Urban Development
$2.5 billion (31.4%) cut to the Environmental Protection Agency
$2.4 billion (19.7%) cut to the Department of Labor
$2.4 billion (12.7%) cut to the Department of Transportation
$1.5 billion (10.9%) cut to the Department of the Interior
$1.1 billion (3.8%) cut to the Department of Justice
$1.0 billion (16.3%) cut to the Army Corps of Engineers

TOTAL = $37.8 billion

And here are the biggest increases:
$52.7 billion (10.1%) increase to the Department of Defense
$4.3 billion (5.8%) increase to the Department of Veteran Affairs
$2.8 billion (6.8%) increase to Homeland Security

TOTAL = $59.8 billion

As you can see, there are still $22 billion in cuts that we have yet to look at -- just to keep things balanced from the year before. But then Trump still has more than three and a half trillion dollars of additional cuts over the next decade.

The biggest individual hits are:
$1183 billion to health services (mostly the ACA)
$627 billion to Medicaid
$194 billion to SNAP
$73 billion to Social Security
$62 billion to pensions

And the following independent programs are completely eliminated in Trump's budget:

• Capital Magnet Fund
• Chemical Safety Board
• Corporation for National and Community Service
• Corporation for Public Broadcasting\
• Housing Trust Fund
• Institute of Museum and Library Services
• International Development Foundations
• Legal Services Corporation
• National Endowment for the Arts
• National Endowment for the Humanities
• Neighborhood Reinvestment Corporation
• Overseas Private Investment Corporation
• all four of the Regional Commissions (Appalachian, Delta, Denali, and the Northern Border)
• US Institute of Peace
• US Trade and Development Agency
• Woodrow Wilson International Center for Scholars

I believe every single American has been positively impacted by at least one of these programs.

And the following departmental programs are also completely eliminated:

• McGovern-Dole International Food for Education
• Rural Business and Cooperative Service
• Rural Economic Development Program
• Rural Waste and Water Disposal Program Account
• Single Family Housing Direct Loans
• Economic Development Administration
• Manufacturing Extension Partnership
• Minority Business Development Agency
• National Oceanic and Atmospheric Administration Grants and Education
• Public Service Loan Forgiveness (for education)
• 21st Century Community Learning Centers
• Comprehensive Literacy Development Grants
• Federal Supplemental Educational Opportunity Grants 
• Impact Aid Payments for Federal Property
• International Education
• Strengthening Institutions Program
• Student Support and Academic Enrichment Grants
• Supporting Effective Instruction state grants
• Teacher Quality Partnership
• Advanced Research Projects Agency
• Title XVII Innovative Technology Loan Guarantee Program and the Advanced Technology Vehicle Manufacturing Loan Program
• Mixed Oxide Fuel Fabrication Facility
• Agency for Healthcare Research and Quality
• Health Professions and Nursing Training Programs
• Low Income Home Energy Assistance Program
• Flood Hazard Mapping and Risk Analysis Program
• Transportation Security Administration Law Enforcement Grants
• Choice Neighborhoods
• Community Development Block Grants
• Home Investment Partnerships Program
• Self-Help and Assisted Home Ownership Opportunity Program
• Abandoned Mine Land Grants
• Heritage Partnership Program
• National Wildlife Refuge Fund
• State Criminal Alien Assistance Program
• Migrant and Seasonal Farmworker Training
• OSHA Training Grants
• Senior Community Service Employment Program
• Development Assistance
• Earmarked appropriations for Non-Profits will be eliminated
• Title II Food Aid
• Green Climate Fund and Global Climate Change Initiative
• Global Agriculture and Food Security Program
• National Infrastructure Development
• Energy Star
• Voluntary Climate Programs
• Geographic Programs for major watersheds
• the five Earth Science Missions from NASA
• NASA Office of Education

Almost all of these generate positive economic growth -- meaning eliminating these programs yields more than a $1 loss to GDP per $1 cut. Thus, this has the direct potential to send us into a recession. And even if it doesn't, you can count on the following 10 things:

1. Student debt will rise as education grants are eliminated.
2. There will be more competition for minimum wage jobs among prime age workers because of the supplemental education cuts.
3. We will no longer be the global leaders in technological advancement. Academic grants have yielded huge technological breakthroughs over the last century. No funding for these means that development stops cold.
4. Fewer people will be able to purchase homes creating a massive drag on the Investment portion of GDP.
5. We will become more dependent on foreign energy thanks to the cuts to energy conservation programs. This creates a massive drag on the Net Exports portion of GDP.
6. Starvation will once again become a major cause of death thanks to cuts to food assistance.
7. We will be less safe from disasters thanks to cuts to NOAA, NASA, GCI, and Hazard programs.
8. We will be less safe from foreign terrorists thanks to cuts to TSA and foreign development aid.
9. We will be less safe at the workplace thanks to cuts to OSHA.
10. We will be less safe in our communities thanks to cuts to already low infrastructure spending.

And why? Because Trump wants a $2 trillion tax cut. This economist can tell you the historical record shows tax cuts never generate as much economic activity as they cut. Especially when they primarily target higher income households.  Wealthier households already spend less than they earn. Cutting taxes will simply boost their personal saving and investment.  Thus a tax cut is really just a transfer of wealth from the US economy to financial exchanges.  Big investment banks and their clients will become wealthier while the bulk of America suffers.

Since mid-March, yields on the benchmark 10-year Treasury bond have fallen from 2.62 percent to 2.28 percent on Tuesday, a sign that traders are discounting the likelihood of a sudden pickup in growth.

An analysis of Mr. Trump’s tax plan by the bipartisan, nonprofit Committee for a Responsible Federal Budget estimated that the federal debt would rise by $5.5 trillion over the first decade. Even if lower taxes encouraged people to save and invest more, the huge government deficits created by the budget would crowd out private investors and offset some of those direct effects, several economists said.

Alan D. Viard, a tax expert at the American Enterprise Institute, a conservative research organization in Washington, said he and other researchers had repeatedly found that “deficit-financed tax cuts were usually harmful to growth.”

Cutting the tax on investment income, for example, delivers the most bang for the buck, Mr. Viard said, but unless the lost revenue is made up through increases in other taxes or spending cuts, the deficit will balloon and economic growth will suffer.

Previous presidents have not had a lot of success using tax cuts to spur growth. “The historical record is pretty clear that large tax cuts don’t pay for themselves through economic growth,” said Michael J. Graetz, a professor of tax law at Columbia University.

The 1981 tax cut that President Ronald Reagan pushed through did provide a short jolt to the economy, Mr. Graetz said, but he pointed out that the administration was compelled to raise taxes in 1982 and 1984 to keep the deficit under control.

The one thing that I do not want to be hearing is how this budget disproportionately harms Trump voters. Because while that may be true, it does a disservice to more than 150 million non-Trump voters that will also be negatively impacted.

As a professional business economist, my best guess is that if this passes, we will be in a recession no later than mid-year 2019.

Catch you on the flip side.