Trump’s 2020 budget proposal assumes permanent individual tax reform provisions
On March 11, 2019 the Trump administration proposed a $4.7 billion budget for fiscal year 2020, which starts officially on October 1, 2019. With the President’s proposed budget, the federal budget deficit in 2020 is expected to be $1.1 trillion, or 4.9% gross domestic product (GDP).
According to Vox media – “the federal budget which covers everything from funding for food aid, education, and health care to national defense, seeks to slash $845 billion from Medicare through structural reforms, as well as a 9 percent cut across non-defense programs, all while increasing the defense budget to $750 billion, 5 percent more than the 2019 budget.” The budget is asking for $8.6 billion in funding for the southern border wall, separated between increased funding for the Department of Homeland Security and funding for military construction.
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This proposed budget is making the assumption or promise that economic growth will average around 3% over the next 10 years, which is a dramatically higher rate of growth than most economic analysts are projecting. Conversely, the Congressional Budget Office (CBO) last January 2019 predicted that growth after the year 2019 would hover around 2% during the next decade. Trump’s budget is projecting GDP to increase to 3.2%, while the CBO estimates only 1.7% growth for the same period.
The 148-page budget summary released on March 11 2019 cites the economic growth benefits of the 2017 TCJA tax reform act and regulatory relief as supporting projections of higher sustained economic growth. This tax reform legislation that was passed in December of 2017 and lowered both corporate and individual tax rates. And Trump’s budget proposal assumes permanent extension of individual tax provisions that were supposed expire after year 2025 under the current tax reform laws. According to a statement from Alan Essig, executive director of the Institute on Taxation and Economic Policy regarding Trump’s budget proposal- “the budget proposal again assumes that Congress will make permanent his 2017 tax cuts, which are already set to cost $1.9 trillion according to the Congressional Budget Office. Many of the tax cuts expire at the end of 2025 and CBO has estimated that making them permanent, as the president proposes, would add more than a $1 trillion to the national debt between now and 2030, and the cost in the years beyond that would be in the trillions. An ITEP analysis has demonstrated that extending these temporary provisions would simply provide more tax cuts to the households who need help the least.”
Trump’s budget calls for substantial reductions in overall domestic discretionary spending programs, while increasing the national security spending. Under this new proposed budget non-defense discretionary spending will decrease by 5% below what the current statutory spending caps are, while increasing spending for defense by 5%. It also assumes enactment of big changes to federal safety-net programs, which includes proposals to establish a Medicaid block grant program for states to disburse under per capita spending caps.
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The budget proposes $11.5 billion for IRS 2020 funding, which is a slight increase from the $11.3 billion appropriated for 2019. This new funding request includes $290 million for the IRS’s multi-year information technology modernization plans. The budget is also asking for new legislation to close the “tax gap” between taxes owed and taxes paid, which they are estimating would produce an additional net savings of $33 billion over the next decade. It also includes new proposals for more oversight of paid tax return preparers, increased wage and information reporting, and clarification of worker classification rules.
This new budget also includes targeted tax proposals in regards to measures that pertain to healthcare and education. It proposes to enable $50 billion over 10 years in new tax credits for individual and corporate donations to State-authorized nonprofit education scholarship granting organizations. As well as proposing to give Medicare beneficiaries with high deductible plans the option to make tax-deductible contributions to Health Savings Accounts or Medicare Savings Accounts.
The budget slashes clean energy and climate science programs
It also is proposing to achieve some budget savings by changing or repealing certain tax provisions. Such as removing certain renewable energy tax provisions, which includes an energy investment credit, accelerated depreciation for renewable energy property, a residential energy efficient property credit, and a plug-in electric drive motor vehicle credit. According to analysis from the House Budget Committee Democrats, the Administration is ignoring the government’s own experts, who recognize that communities across the country are already beginning to feel the harmful effects of the climate crisis. While CNBC just recently reported that Bill Gates, Jeff Bezos, Jack Ma and other wealthy investors are pouring billions into clean-tech ventures through a fund called Breakthrough Energy Ventures (BEV).
The budget is calling for reauthorization of the oil spill liability trust fund excise tax but would require a social security number for the child tax credit, the earned income tax credit, and the credit for other dependents.
So while many Republicans not surprisingly seem to support President Trump’s budget proposal, the Senate and House Democrat leaders disagreed with President Trump’s priorities and vocalized their concerns with it. According to Bustle the pair said in a joint statement that “At a time when our country faces challenges about jobs for the future, this money would better be spent on rebuilding America, and on education and workforce development for jobs for the 21st Century,” Funding a border wall in the budget proposal might make a government shutdown more likely. As mentioned earlier this new budget is requesting $8.5 billion to build a new barrier, which happens to be higher than the $5.7 billion requested in the previous years budget and the $1.3 billion that was approved by Congress in 2019. In January, the major party disagreements over funding a wall led to the longest shutdown in US history and the budget seems to be another avenue that the administration is exploring in order to fund the contested wall. In addition, the Administration has declared a national emergency in order to reallocate funds from the DOD and other departments as well as agencies so that they can release additional funding for border wall beyond the $1.3 billion originally appropriated by Congress. Recently the House had passed a resolution that disproves of the emergency declaration and Senate could also pass a disapproval measure. President Trump has stated that he would veto the disapproval resolution if it is approved by Congress. The House and Senate currently are not expected to have the two-thirds majority needed to override President Trump’s expected veto.
The Next Steps
The House and Senate Budget Committees are expected soon to begin work on 2020 budget resolution. Congress by law is supposed to complete action on a joint 2020 budget resolution by April 15, 2019, but this budget deadline is non-binding and routinely ignored; the previous Congress did not complete a 2019 budget. The partisan fight over President Trump’s budget has had a negative effect on later debates regarding congressional legislation to increase the federal debt limit. Recently Steve Mnuchin wrote to the House and Senate leaders to request action on legislation increasing the statutory debt limit. While he waits he noted that the Treasury Department would rely on extraordinary measures to meet Washington’s debt obligations. Last February, the CBO had projected Treasury would not exhaust its ability to meet federal debt obligations. Until near the end of fiscal year 2019 (September 30, 2019) or in the first quarter of 2020.
Earlier House Democrats had approved changes to House rules that include reinstating a modified version of the ‘Gephardt rule’ that would allow the House to automatically generate and pass a free-standing measure suspending the debt limit upon voting to approve a budget resolution. Currently, any debt limit approved by the House under the procedure still would require 60 votes in order to pass the Senate and would then have to be signed into law by President Trump.
The stark differences over President Trump’s 2020 budget highlight the political divisions that complicate the outlook for significant legislation this year. Regardless, President Trump and Congress will need to find ways to achieve some degree of common ground if action is to be taken later this year to avoid another partial government shutdown and to increase the statutory debt limit. Trump’s fiscal budget proposal threatens to exacerbate all of the major problems facing the U.S. economy and society today “in order to fund more goodies for the wealthy,” – according to political economist Gerald Epstein. Currently, this proposed budget would extend the 2017 tax breaks for rich individuals, making the very rich and the military industries the major beneficiaries of the budget proposal.