Earlier this month, President Trump released his second budget, outlining the Administration’s policy proposals, budgetary projections, and economic forecast for the next decade. The President’s budget reflects a dramatically worse fiscal outlook than last year’s version released just nine months ago. This is due primarily to the fiscally irresponsible tax legislation signed in December. Moreover, the budget continues to rely on unrealistic assumptions, including spending cuts that are highly unlikely to pass and optimistic projections of economic growth that significantly exceed those of most other economists. In fact, just days prior to the release of this budget, the President signed a spending bill that increased spending to well above the levels in his own budget. To our knowledge, this is the first time that a President overspent significantly above his budget even before it was released.

While the budget does not lay out a path to a sustainable fiscal outlook, it does reduce future deficits by the Administration’s calculations and generates a small decline in federal debt relative to the size of the economy. Under the President’s FY2019 budget:

• Revenues would total $45.5 trillion and spending would total $52.6 trillion over the 10-year budget window.
• Budget deficits would be reduced by $4.4 trillion over 10 years, from $11.5 trillion under the President’s baseline to $7.1 trillion under the President’s budget. (The President’s baseline includes a proposal to extend tax cuts that will expire at the end of 2025 under current law.)
• Revenues are estimated to increase from 16.7 percent of gross domestic product (GDP) in fiscal year 2018 to 17.8 percent in 2028; spending is anticipated to fall from 21.0 percent of GDP in 2018 to 19.0 percent in 2028.
• The majority of the spending cuts come from reductions in non-defense discretionary programs; Medicare accounts for approximately 15 percent of the spending cuts.
• Debt as a share of the economy is reduced marginally over 10 years, from 76.5 percent today to 72.6 percent in 2028.
• The effects of the Bipartisan Budget Act of 2018, which was signed into law by the President on February 9^th, was enacted too late for inclusion in the budget. Therefore, the higher caps provided for 2018 and 2019, additional spending for disaster relief, and other provisions of the legislation are not reflected in the budget numbers.

The President’s budget would reduce the annual deficit to 1.1 percent of GDP in 2028 — significantly below the 4.4 percent of GDP estimated for this year. However, much of that reduction relies on an assumption that real (inflation-adjusted) GDP will average nearly 3 percent growth annually over the next 10 years. It is also predicated on a reduction in non-defense discretionary spending of nearly $2 trillion through 2028; earlier this month, though, the caps on such spending were raised by $65 billion for 2019 (that increase is not reflected in the budget since it happened shortly before the release of the document). If those assumptions do not materialize, annual budget deficits would be much higher than the administration projects over the next 10 years, and lead to a significantly higher level of debt.

Last year’s Administration budget anticipated a budget surplus of 0.1 percent of GDP in 2027, while this year’s version anticipates a deficit of 1.4 percent of GDP. Much of this variation stems from the unpaid-for tax cuts enacted in December 2017. The Administration assumes that the reduction in tax rates on individuals and corporations and other provisions enacted in that legislation will continue through the 10-year budget period; those effects — along with the interest payments on additional debt accrued — will increase deficits throughout that period.