Trump's Budget Proposal Threatens Democratic and Republican Ambitions

President Trump reportedly wants to exclude Social Security and Medicare from budget cuts while severely retrenching other domestic federal functions. That represents a frontal challenge not only to congressional Democrats but also to Republican budget hawks led by House Speaker Paul Ryan.

From one direction, the administration’s emerging budget blueprint represents a clear generational tilt toward the “gray” over the “brown”: It would elevate the spending priorities of a preponderantly white-and Republican leaning-older population over the needs of heavily diverse, and mostly Democratic, younger generations. But the plan would also prioritize the demands of seniors over the long-running effort by Ryan-led House Republicans to restrain the long-term growth in entitlement spending––which almost all budget experts consider the key to controlling long-term federal deficits.

“If you want to solve the budget program, and you must, you have to look at those programs,” said Douglas Holtz-Eakin, president of the American Action Forum, a conservative thinktank, and former director of the Congressional Budget Office.

In both respects, the emerging budget proposal––like Trump’s bristling criticism of free trade, foreign alliances and even legal immigration––would mark another milestone in his drive to reconfigure the Republican Party as a nationalist and populist champion of blue-collar white voters, many of them older and less affluent.

“As the nation went through this very rapid demographic change the question has been would older white Americans would essentially withdraw from the public sphere and not fund a new generation who did not look like their kids,” said Simon Rosenberg, president of NDN, a Democratic advocacy group. “You are going to see that basic dynamic play out in a very significant way under Trump. What Trump is doing is creating a wall around older white Americans: he is being an isolationist both within the country and without. He is trying to create walls between older white Americans and the new Americans who surround them.”

While the administration won’t produce a full budget until mid-March, it has already sketched out the central pillars of its strategies: a defense spending increase of $54 billion, offsetting cuts in other domestic spending programs, a major tax cut and limited or no changes in Social Security and Medicare, which Trump pledged during the campaign to defend.

By so overtly favoring retirement spending over other domestic federal programs, Trump has underscored the generational competition for resources that, as I’ve written before, represents a central if often unacknowledged tension in budget debates. Most of the key federal investments in the productivity of future generations are made through discretionary programs, like those that support education, training and scientific research.

The federal government’s support for seniors, by contrast, mostly flows through the giant entitlement programs for the elderly, Social Security, Medicare and Medicaid (which finances long-term care for lower-income seniors). Several entitlement programs also provide substantial benefits to young people and their working-age parents: that list includes Supplemental Nutrition Assistance Program (formerly known as food stamps), Medicaid (which, in addition to benefiting the elderly, provides health care for low-income families), the Children’s Health Insurance Program, and more recently the Affordable Care Act.

Setting the spending levels for these programs poses stark racial and political choices. The younger population that benefits most directly from investments in the productivity of future generations is increasingly diverse: minorities comprise fully 47 percent of all Americans younger than 30, according to 2015 Census data. Whites comprise nearly four-fifths of today’s seniors and almost three-fourths of all Americans older than 45.

These contrasting groups anchor each party’s electoral coalition. Whites over 45 provided a majority of Trump’s votes last fall, and about three-fifths of House Republicans represent districts where the share of seniors exceeds the national average. Meanwhile Hillary Clinton relied on big margins among members of the Millennial Generation and minorities (even though she did not quite match Obama’s overwhelming advantages on either front.) About two-thirds of House Democrats represent districts with fewer seniors than average.

In the long run, the older white population needs more of the younger non-white population to obtain the skills to reach the middle-class––and pay the payroll taxes that support the federal retirement programs on which those graying whites depend: as I’ve argued before, there is no financial security for the gray without economic opportunity for the brown. But neither party has effectively made that case to the public, and attitudes about federal spending generally divide along generational and racial lines. Most older whites now oppose an activist government––with the prominent exception of the retirement programs that benefit them.

Briefing the press on Monday, Mick Mulvaney, Trump’s Office of Management and Budget director, didn’t nail the door  shut on ever seeking any reductions in the retirement programs for the elderly. But speaking a few minutes later, White House press secretary Sean Spicer made clear Trump remains deeply resistant to such changes. “I think the President has made very clear that … he wants to focus on the discretionary side; that entitlement reform is not––that, with respect to those programs that he mentioned [during the campaign], he stands by his word,” Spicer said.

If Trump’s budget follows the lines his aides have telegraphed, the Pentagon and those older whites would represent the clear winners––with the losers including both urban and younger Democratic constituencies and traditional Republican budget hawks. “He’s appealing to Republicans on defense, but fiscal discipline, whether entitlements or government spending, he’s saying ‘go to hell,’” said one Democratic mayor. “And to Democrats he’s saying ‘your constituents are going to pay for my defense buildup.’”

Partly because of shifting population and partly because of policy choices, federal spending has already steadily shifted from the young toward the old. In 1969, the Office of Management and Budget classified one-third of federal spending as investments in the future, and about one-third as payment to individuals. Since then payments to individuals––largely driven by the growth in the retirement programs for the elderly––have roughly doubled to over three-fifths of federal spending. Meanwhile, investments in the future now represent only about one-sixth of federal spending, half the level in 1969.

The repeated budget showdowns between Congressional Republicans and former President Obama tilted Washington’s fiscal priorities even further away from young people by largely exempting entitlement programs from reductions while imposing severe caps on discretionary spending. Though Congress and Obama repeatedly agreed to loosen the constraints, the weight of those caps has pushed down domestic discretionary spending to about 3 percent of gross domestic product, near its nadir since Washington began keeping such records in the early 1960s.

The Urban Institute has calculated that the federal government now spends about $6 per capita on seniors for every $1 it spends on kids. (Even including state and local spending, where most education dollars are committed, governments at all level spend about $2.3 per capita on seniors for every $1 they spend on kids.) Looking forward, the institute projects that programs aimed at kids will receive only 2 percent of the anticipated rise in federal spending over the next decade-and by the end of that period, in 2026, the portions of Social Security, Medicare and Medicaid that benefit adults will account for almost exactly half of the entire federal budget.

The budget priorities the Trump administration highlighted on Monday would generate even more pressure on programs that invest in the next generation. By matching a defense build up with offsetting cuts in domestic programs-at a time when non-defense discretionary spending is already at such an historic low ebb––the Trump budget is poised to strike sharply at the needs of Democratic constituencies, including cities, which would likely see severe proposed reductions in an array of federal programs.

Congressional Republicans will likely cheer both the determination to increase defense spending and to cut other domestic discretionary programs and entitlements focused on lower-income families like SNAP, to help pay for it. But budget hawks will be less enthused by Trump’s determination to exempt retirement programs for seniors from further reductions.

Since Republicans took control of the House in 2011, reducing spending on both Medicaid and Medicare has been the centerpiece of Ryan’s proposals to limit long-term federal spending. Trump has indicated his willingness to accept large reductions in Medicaid, which serves a dual constituency of older and low-income Americans. But the budget signals floated Monday continue the unmistakable resistance that Trump has radiated throughout his campaign to Ryan’s core idea of converting Medicare from an open-ended program that directly pays seniors’ medical bills into a premium support or voucher system that instead provides them a fixed sum of money to purchase private insurance. Polls have shown that idea faces enormous opposition from seniors across racial lines.

House Republicans included converting Medicare into a premium support system in “the better way” agenda that they published last summer. And in an interview last fall at The Atlantic’s Washington Ideas Forum, Ryan told me that he would continue to push the idea regardless of who won the presidency.

“If we blow another presidency and don't fix these entitlement problems and then get around to it after the boomers are well under retirement,” Ryan said, “it will be ugly reforms that pull the rug out from people after they’ve retired in order to stave off a debt crisis spurred by the bond markets.”

But Holtz-Eakin said White House opposition would doom any effort from House Republicans to restructure Medicare. “It is very hard to imagine,” he said. “A major tax reform, a major entitlement reform, you need White House leadership, you need air cover, they are all essential. Ryan’s first stop is to persuade the president that he was mistaken and a better route is to fix the social safety net for seniors.”

Similar tensions are emerging as Congressional Republicans and the Trump Administration try to reach agreement on how to revise or replace the Affordable Care Act. With research showing that blue-collar whites have been the law’s principal beneficiaries in the key Rustbelt states that tipped the election to Trump, the administration has appeared more hesitant than Capitol Hill conservatives about withdrawing that coverage.

If Trump, in fact, prevents Congressional Republicans from targeting Medicare or Social Security (where even the House GOP has generally feared to tread), he will deny Democrats their most effective weapon in the fiscal fights between the parties dating back to Bill Clinton and Newt Gingrich: the argument that the GOP is endangering retirement programs for the elderly to cut taxes for the wealthy.

But, Rosenberg notes, the inevitability of widening deficits under the formula the Trump administration is floating-big defense increases, tax cuts, severe reductions in other domestic spending and no meaningful constraints on retirement programs-could leave Republicans very vulnerable to the argument that their plans would endanger the economy.

“Democrats have to respond with an economic argument, not just a fiscal argument––that this kind of policy they are pursuing will harm the American economy by driving up deficits and not investing in things we know will drive future growth,” he said. That argument might find its most receptive audience among the white-collar whites already expressing skepticism of Trump on other grounds.

By aiming so clearly at older and lower-income whites, while threatening younger minorities and potentially alienating more white-collar whites, Trump’s developing budget plan could reshape the budget arguments familiar for both sides since the 1990s—while accelerating the class and racial realignment of the two party coalitions already rumbling through his tumultuous term.