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Where the President’s Discretionary Cuts Might Fall

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Where the President’s Discretionary Cuts Might Fall

June 1, 2017

President Trump’s budget proposals to overhaul health and antipoverty entitlements have overshadowed his similarly bold proposal to cut discretionary spending – excluding defense – from $619 billion this year to $429 billion a decade from now. That is a 30 percent reduction, even though keeping up with inflation and population growth would require a 25 percent increase.

Rather than specify these ten-year non-defense discretionary reforms, the budget shows initial cuts followed by an across-the-board sequestration that would top $100 billion by 2027. But certain programs could not operate on such deep reductions. Instead, Congress and the President would likely reorganize the discretionary budget by fully funding high-priority programs while eliminating, privatizing, and devolving other programs.

To determine the effects of this tight spending cap, I calculate where the cuts would likely fall. My estimates are not based on any inside sources from the Trump Administration. Rather, I extrapolate the budget’s own reductions, and fill in the remaining gaps based on my own experience crafting federal budgets for several leading presidential campaigns and working as a federal budget economist in the Senate.

Only one plausible path exists to slash non-defense discretionary spending to $429 billion by 2027 while protecting the President’s priorities. It would excite some and horrify others.

Top priorities should be immune from cuts. Veterans’ health care spending, politically untouchable, has doubled to $70 billion over the past decade to accommodate new veterans, and must grow to roughly $90 billion over the next decade due to rising costs. Border security will also add new spending. These priorities force deeper cuts elsewhere.

Federal employment and its generous compensation would be reduced. The federal civilian workforce could be downsized by 10 percent by replacing only one-third of the workers who leave their jobs ($7 billion saved in 2027), slowing the annual growth rate of federal civilian employee pay by half a percentage point ($12 billion), and requiring federal employees to contribute more to their own retirement plans ($7 billion).          

Other potential cross-agency reforms include raising user fees to better reflect program costs ($3 billion), and raising $10 billion annually by 2027 through modest federal asset and land sales (which Congress could classify as an offset to discretionary spending).

With regard to specific programs, two-thirds of non-defense discretionary spending goes to federal operations, and the rest to state and local government grants.

Many federal operations – such as national parks, embassies, federal prisons, the Coast Guard, and disaster aid – reflect core federal duties that cannot easily absorb a 30 percent cut. Spending caps have already kept most of this spending at 2010 levels. Instead, these programs would be trimmed to reflect the federal employee savings described above. Then spending would be frozen in 2017 dollars at that lower level for another decade, despite inflation, which likely reflects the ceiling for squeezing out remaining inefficiencies.

Other federal operations could be targeted for deeper reforms. The Administration could shelve NASA’s human space exploration program ($10 billion), and halve the National Science Foundation and energy research (saving $6 billion). President Trump's privatization targets include Amtrak ($1 billion); much of the Federal Aviation Administration (saving $10 billion); agriculture research ($1 billion); AmeriCorps and related programs ($1.5 billion); and the National Endowments for the Arts and the Humanities and public broadcasting ($0.7 billion combined).

President Trump proposes cutting international spending nearly in half. Drastic reductions in the $45 billion foreign assistance budget would spare most of the $10 billion spent safeguarding our embassies and conducting foreign affairs.

Next, we move on to the $200 billion in discretionary grants to state and local governments,  the source of the most plausible savings. Devolving these programs could empower states to flexibly tailor local programs to local needs, rather than be straitjacketed by Washington mandates.

For example, the completion of the interstate highway system leaves little reason for Washington to continue collecting the federal gas tax and redistributing it to states. Congress could save $40 billion in federal spending (and taxes) by eliminating the federal middle man and allowing states to collect and spend the tax themselves on projects of their choice.

Other federal grant programs that could be devolved to states include housing aid to the poor (reduce by $30 billion and retain the final $10 billion for the hardest-hit states); means-tested food, child care, and home energy assistance ($10 billion); Head Start and other family service programs ($11 billion); job training ($6 billion); social services ($2 billion); economic development ($8 billion); justice ($2 billion); pollution control ($4 billion); disaster preparation ($2 billion); and numerous small public health grants ($6 billion). Public health research programs such as the National Institutes of Health and the Centers for Disease Control would likely remain frozen.

Within education, lawmakers could freeze the two largest K-12 programs (special education and Title I grants to low-income school districts) at today’s combined $29 billion level, while eliminating dozens of small and largely unnecessary K-12 grant programs ($6 billion). Freezing Pell Grant spending at $24 billion, despite rising population, would require trimming either eligibility standards or the $4,860 annual maximum award.

Altogether, these reforms would reduce 2027 non-defense discretionary outlays to the $429 billion target proposed by President Trump. They are certainly not easy. Many reforms would make government more efficient, local, and accountable, while others would create significant challenges. State taxes would likely rise to accommodate new responsibilities.

Such cuts are the price of balancing the budget without addressing the soaring Social Security and Medicare costs that are driving the deficit upwards.

Brian Riedl is a senior fellow at the Manhattan Institute. Follow him on twitter @Brian_Riedl.

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