by Mish

U.S. President Donald Trump wants lawmakers to slash $3.6 trillion in government spending over the next decade, taking aim in his first budget plan at healthcare and food assistance programs for the poor while boosting the military.

Trump seeks to balance the budget by the end of the decade, according to a preview given to reporters on Monday. There is some new spending in his plan for fiscal year 2018, which starts in October.

The Pentagon would get a spending hike, and there would be a $1.6 billion down payment to begin building a wall along the border with Mexico, which was a central promise of Trump’s presidential campaign.

Trump’s proposal foresees selling half of the U.S. emergency oil stockpile, created in 1975 after the Arab oil embargo caused fears of price spikes. The announcement surprised oil markets, and briefly pulled down U.S. crude prices.

The biggest savings would come from cuts to the Medicaid healthcare program for the poor made as part of a Republican healthcare bill passed by the House of Representatives.

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Trump, who is traveling overseas this week, wants lawmakers to cut more than $800 billion from Medicaid and more than $192 billion from food stamps.

Republicans are under pressure to deliver on promised tax cuts, the cornerstone of the Trump administration’s pro-business economic agenda, which would cut the business tax rate to 15 percent from 35 percent, and reduce the number of personal tax brackets.

Republican leaders in the House said lawmakers would be able to find common ground with the budget plan.
“At least we now have common objectives: grow the economy, balance the budget. So at least we are now on that common ground, and we will have a great debate about the details about how to achieve those goals,” U.S. House Speaker Paul Ryan told reporters.

Trump’s plan relies on forecasts for economic growth of 3 percent a year by the end of his first term – well beyond Congressional Budget Office assumptions of 1.9 percent growth.

Plan Relies on 3% Growth

Trump’s plan requires 3% growth to balance the budget. I believe that’s impossible for three key reasons.

  1. Very unfavorable demographics
  2. Huge debt Overhang
  3. Poor prospects for growth in real wages

We will explore growth further in a follow-up post.

Mike Mish Shedlock

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