The President’s Budget for Fiscal Year 2018

The Trump Administration submitted its formal budget proposal this week. Key components of the budget are the following (all figures are from the Office of Management and Budget):

Balances the Budget

The President’s budget reduces deficits by $5.6 trillion over the course of the 2018-2027 period, achieving a surplus of $16 billion at the end of the decade. It reduces debt held by the public from 77.4 percent of gross domestic product [GDP] this year to 59.8 percent of GDP by the end of the decade. President Obama never even tried to balance the budget.

Defense and Non-Defense Discretionary Spending

The budget calls for increasing base defense discretionary spending by $54 billion in 2018 and reducing nondefense by the same. His budget proposes $603 billion in base defense discretionary spending in fiscal year 2018, and $462 billion for non-defense discretionary. Defense rises to $727 billion in 2027, while non-defense declines to $367 billion. For the Global War on Terrorism (called “overseas contingency operations” in the Budget Control Act of 2011), the President’s budget calls for a total of $77 billion in fiscal year 2018 – $65 billion for defense and $12 billion for non-defense.Blue bar chart of president's budget numbers

Mandatory Savings

The budget achieves a net of $2.5 trillion in 10-year savings from direct spending proposals, including major program reforms summarized below. The budget assumes no changes in core Social Security or Medicare benefits. Proposed reforms do include, among others, repealing and replacing Obamacare; reforming Medicaid and the Children’s Health Insurance Program; reforming welfare to strengthen the safety net and promote self-sufficiency; reforming student loans; reforming disability programs; reducing farm subsidies; and reducing improper payments.

Tax Reform

The budget proposes revenue-neutral tax reform that reduces individual tax brackets to three, reduces business taxes, and simplifies the tax code by eliminating most targeted tax breaks.

Economic Assumptions

Over the 2018-2027 period, the administration projects 2.9-percent average annual real (inflation-adjusted) GDP growth, based on the President’s proposed policies, including spending and deficit reduction, tax reform, and regulatory reform. That growth rate is greater than projections of the Congressional Budget Office or the Blue Chip consensus of private forecasters, but it is consistent with the historical average, slightly above 3.0 percent per year.