What Trump's Budget Means for Debt, Defense and Drug Prices

By Yuval Rosenberg and Michael Rainey Trump Clearly Has No Problem with Debt and Deficits A self-proclaimed “king of debt,” President Trump has produced a budget that promises red ink as far as the eye can see. With last year's $1.5 trillion tax cut reducing revenues, the White House gave up even trying to pretend that its budget would balance any time soon, and even the rosy economic projections contained in the budget couldn’t produce enough revenues, however fanciful, to cover the shortfall. The Trump budget spends as much over 10 years as any budget produced by President Barack Obama, according to Jim Tankersley of [The New York Times](. And it projects total deficits of more than $7 trillion over the next decade — "a number that could double if the administration turns out to be overestimating economic growth and if the $3 trillion in spending cuts the White House has floated do not materialize in Congress,” Tankersley says. Trump — who once promised to both balance the budget and pay down the national debt — isn’t the only one throwing off the shackles of fiscal restraint. Republicans as a whole appear to be embracing a new set of economic preferences defined by lower taxes and higher spending, in what Bloomberg describes as a “striking turnabout” in attitudes toward deficits and the national debt. But some conservatives [tell Tankersley]( that the GOP's core beliefs on spending and debt remain intact — and that spending on Social Security and Medicare, the primary drivers of the national debt, are all that matters when it comes to implementing fiscal restraint. “They know that right now, a fundamental reform of entitlements won’t happen," John H. Cochrane, an economist at Stanford University’s Hoover Institution, tells Tankersley. "So, they have avoided weekly chaos and gotten needed military spending through by opening the spending bill, and they got an important reduction in growth-distorting marginal corporate rates through by accepting a bit more deficits. They know that can’t be the end of the story.” Democrats, of course, [have warned]( that the next chapter in the tale will involve big cuts to Social Security and Medicare. Even before we get there, though, [Tankersley questions]( the GOP approach stands up to scrutiny: "This is a bit like saying, only regular exercise will keep America from having a fatal heart attack, so, you know, it's ok to eat a few more hamburgers now." Chart of the Day Here’s an overview of how the White House’s 2019 budget would affect funding for 18 departments and agencies relative to actual 2018 funding levels, via The Washington Post. [Click through to the Post]( for more details about the proposed changes to each department and agency. Billions More for the Pentagon, but the Buildup Will Have to Wait The Trump budget request raises military spending significantly to $686 billion in 2019, with $617 billion for the base budget and $69 billion for the overseas war-fighting account. (With $30 billion in “other” defense spending, including the Department of Energy’s nuclear weapons program, the national security total comes to $716 billion.) This is roughly in line with the levels defined by the budget deal lawmakers agreed to last week, so it’s a good bet that the final appropriations for 2019 will be in the $700 billion range, an enormous boost by any measure. At the same time, though, defense hawks are warning that the extra money will get the military only back to where it should have been after years of reduced funding imposed by the budget caps since 2011. In a briefing Monday, David Norquist, the Pentagon’s CFO and comptroller, [said]( “It is a sign of how deep the hole is that we are in that it takes this big of an increase just to get the department’s budget back to where inflation alone would have put us.” This chart from the [Pentagon’s 2019 budget request]( illustrates the issue: As the budget restrictions imposed by the budget caps come to an end, much of the increase in the budget will be spent on deferred maintenance and training to rebuild capacities that have been lost or weakened, leaving little left over for the big military buildup President Trump has said he wants. For example, the budget increase will enable the Navy to buy one more ship than planned in 2019, but that still leaves the fleet far short of the 355 ships promised by the White House, according to [Defense News](. The fleet will hit 308 ships in 2020, one year ahead of the target set previously by President Obama, but with military spending projected to level off, it will take decades to reach 355 ships. According to Rear Adm. Brain Luther, deputy assistant secretary of the Navy for budget, the Navy won’t hit that target until the 2050s. How Trump’s Budget Would Cut the Social Safety Net As a candidate, President Trump said he would not cut Medicare, Medicaid or Social Security. But his 2019 budget proposal seeks to reduce spending on all three programs and other parts of the social safety net. The White House budget for 2019 proposes to eliminate [$554 billion]( in Medicare spending and up to $250 billion in Medicaid outlays over the next 10 years. Those proposals are part of broader cuts to entitlement programs, including: - [$213.5 billion in reductions]( to the Supplemental Nutrition Assistance Program, more commonly known as food stamps. - $3.5 billion from nutrition assistance for pregnant women and young children (WIC) - $47 billion from the Section 8 housing program Overall, the budget proposals released Monday would reduce health spending by about $1.1 trillion and safety net spending by $335 billion over 10 years, according to an [analysis by the Committee for a Responsible Federal Budget](. While there’s little chance that the Trump budget will have much sway in the spending that actually occurs in 2019, the White House has made it abundantly clear where its preferences lie. The president’s budget says it will achieve its targeted Medicare savings through a host of vague reforms, including improvements to “drug pricing and payment policies,” reductions in fraud and abuse and the elimination of “wasteful spending.” The budget says the proposed changes would extend Medicare’s solvency by eight years. The budget also calls for eliminating the Medicaid expansion adopted by 32 states and the District of Columbia under Obamacare and proposes new limits on how much health care each Medicaid enrollee can use. It would also transition Medicaid payments from an entitlement system, in which the federal government pays a share of the cost of covering every eligible state resident, to per-person caps or block grants similar to those proposed under the failed Graham-Cassidy health care bill. The changes would allow states to impose tighter eligibility requirements or work requirements that would potentially kick some people out of the program. Politico calls the Medicare proposals a victory for White House budget chief Mick Mulvaney, “who has begged the president to tackle entitlement spending, including Medicare, since their early days at the White House.” And budget watchdogs welcomed the attention on Medicare spending. “Compared to last year's budget, the focus on controlling Medicare costs is especially important – and the Medicare policies in the budget would all achieve savings by improving efficiency and value of care rather than cutting benefits for beneficiaries,” the [Committee for a Responsible Federal Budget said]( in a blog post. But critics on the left slammed the spending cuts and were quick to seize on the political opportunity they represent in an election year. “Cutting Medicare to pay for tax cuts for the wealthy is something for Dems to run on,” Dan Pfeiffer, a former adviser to President Obama, [tweeted](. Trump’s Plan for Lowering Prescription Drug Prices The White House budget released Monday includes a number of ideas for lowering the cost of prescription drugs: - Passing on discounts and rebates negotiated by pharmacy benefit managers to seniors enrolled in Medicare Part D. Seniors would see out-of-pocket savings, but insurers could hike their premiums. - Reducing Medicare Part B reimbursements for drugs administered in a hospital. - Switching reimbursement for some drugs administered in doctor’s offices or hospitals and paid for under Medicare Part B to Medicare Part D, allowing the price of those drugs to be negotiated. - Capping out-of-pocket costs for Medicare beneficiaries affected by the insurance program’s coverage gap, and ensuring that low-income seniors in Medicare don’t pay for generic drugs. - Creating a pilot project that gives up to five states the ability to band together and negotiate Medicaid drug prices with manufacturers and provides greater flexibility to the states in choosing which drug would be included in their formularies. The bottom line: The budget proposals, which come days after the White House Council of Economic Advisers issued a [report]( about lowering drug prices, suggest that the administration may be starting to focus on keeping President Trump’s oft-repeated promise to bring drug prices “way down.” The election-year timing may add some political incentive to make progress on the issue. The proposals involve some difficult tradeoffs. Some Medicare beneficiaries would likely face higher prices, but those who now pay the most overall for their drugs [could save thousands of dollars]( annually. Still, Allan Coukell, senior director of health programs at the Pew Charitable Trusts, told Kaiser Health News that while several of the proposals have price-lowering potential, “none of it changes the overall trajectory” of prescription prices. News - [‘Crisis Budgeting’ Likely Ahead Despite White House Claim]( – Roll Call - [Trump’s Budget Hits Poor Americans the Hardest]( – Washington Post - [Trump’s Budget Proposal Hurts the Rust Belt Factory Towns That Voted for Him]( – Vox - [Trump’s Budget Would Cut Federal Amtrak Spending in Half]( – Bloomberg - [Trump Takes Aim at Blue States in Infrastructure Plan]( – Bloomberg - [Trump Would Cut More in Federal Infrastructure Spending Than He Proposes to Add, Democrats Say]( – Washington Post - [Trump Wants to Impose a 'Reciprocal Tax' on Trade Partners]( – Reuters - [Apple CEO: We Can Make a 'Significant Contribution' in Health Care]( – CNBC - [Bond Investors Worry About the Tax Overhaul’s Long-Term Cost]( – Wall Street Journal - [Trump Slump? Remington Files for Bankruptcy Amid Declining Gun Sales](. – Washington Post Views - [Trump's Budget Misses the Mark]( – Bloomberg Editorial Board - [Trump Budget Highlights Disconnect Between Populist Rhetoric and Plutocrat Reality]( – James Hohmann, Washington Post - [Why GOP Is Slashing Medicare]( – John Wasik, Forbes - [The Deficit Hawks Have It Wrong]( – Robert Kuttner, American Prospect - [Meet the Deficit Doves]( – Patricia Murphy, Roll Call - [Trump Hates Deficits — Unless They Help Rich People]( – Catherine Rampell, Washington Post - [Trump Tells a Lot of Little Lies. This Is the Big One.]( – Eugene Robinson, Washington Post - [Look! Suddenly Republicans Don't Hate the IRS]( – Albert R. Hunt, Bloomberg View - [Trump ‘$1.5 Trillion’ Infrastructure Plan Is a Mirage]( – Jacob Leibenluft, Center on Budget and Policy Priorities - [Trump's Huge Infrastructure Plan Is a Flop]( – Barry Ritholtz, Bloomberg View - [The Solution to Trump’s Infrastructure Problems: Raise the Gas Tax]( – Emily Atkin, New Republic Copyright © 2018 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com. Our mailing address is: The Fiscal Times 712 Fifth AvenueNew York, NY 10019 [Add us to your address book](//thefiscaltimes.us1.list-manage.com/vcard?u=40d2c5373681f5cd830b6d823&id=714147a9cf) If someone has forwarded this email to you, consider signing up for The Fiscal Times emails on our [website](. Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe from this list](