BREAKINGVIEWS-US budget botches subtraction and multiplication

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Gabriel Rubin

WASHINGTON, Feb 27 (Reuters Breakingviews) - Not every dollar in the U.S. budget equals a dollar. Some are worth far more, which only further distorts the math congressional Republicans are using to justify spending cuts.

The main goal is to extend as much as $4.5 trillion of tax savings, over 10 years, from President Donald Trump’s first term and to scrounge up money to fund border security. To do so, lawmakers want to slash some $1.5 trillion of expenses over the next decade. The GOP plan involves chopping in places that are as financially confounding as they are politically problematic.

House Republicans, without any Democratic votes, passed a blueprint this week that establishes the basics. For one, it designates the panel that oversees Medicaid, a program that helps cover medical costs for poorer Americans, to find ways to knock out $880 billion of spending over a decade, or roughly equivalent to its annual budget. There simply isn’t that much waste and fraud to eliminate, which means making patients and states shoulder more of the burden. The rough draft also aims to lop off $230 billion of food assistance, potentially hitting about 9 million average monthly recipients, the Center for Budget and Policy Priorities estimates.

These ideas endanger an already bloated $1.8 trillion deficit, which exceeds 6% of GDP. Medicaid spending, for example, punches above its weight economically. Every $1 spent leads to $1.50 of output, largely by keeping Americans healthier, according to research by the Federal Reserve Bank of Dallas. Subsidizing grocery bills is even better, with $1 triggering $1.79 of activity, including from farmers, retailers and other parts of the supply chain, the U.S. Department of Agriculture says. Republicans are also separately targeting funds for tax enforcement, even though crippling tax collectors would be the most detrimental move. Every $1 devoted to policing avoiders and evaders returns $6.40, the Congressional Budget Office estimates.

If the proposed tax cuts more than paid for themselves, they could theoretically make some sense. Most of them, however, accrue to wealthier individuals more likely to sock extra cash away than spend it. There’s little evidence to support the trickle-down effect promised by Trump and generations of Republicans.

Altogether, these are ominous signals to send. Fears of persistent inflation and unpredictable trade policy have left yields on 10-year Treasury bonds at around 4.3%, compared to the recent 3.6% low in mid-September when Democratic presidential hopeful Kamala Harris led in pre-election polls. Moreover, Republicans are aiming to raise the U.S. borrowing limit by another $4 trillion, leaving no end in sight for Washington’s profligacy. Higher debt and slower growth hardly sound like a pro-business agenda.

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CONTEXT NEWS

The U.S. House of Representatives voted 217-215 on February 25 to advance President Donald Trump's tax-cut and border security agenda. No Democrats supported the measure.

Republicans disagree over how to pay for the package, with some favoring steep cuts to government programs like Medicaid, nutritional assistance and education grants while others worry about the impact of those cuts on their personal constituencies.

The Republican blueprint targets up to $2 trillion in spending cuts, with a potential $880 billion cut from Medicaid spending over 10 years.