The White House Budget Plan Shortchanges Our Economic Future

Jason Furman (PIIE)

March 30, 2017

President Trump campaigned on a promise to invest more in America’s infrastructure. In recent weeks, the White House has tried to tamp down expectations, stating that the administration’s infrastructure effort will begin in 2018. The “skinny budget” released today starts the effort right away, but unfortunately it starts it with large cuts to infrastructure that, together with its cuts to science and education, would shortchange our economic future as they come on top of the already reduced sequestration levels.

The Department of Transportation (DOT) is slated for a 13 percent cut relative to current levels, or a total reduction of $2.4 billion. Given that most of what DOT does is fund grants to states and localities, such a cut inevitably translates into less infrastructure investment.

Some of the specific cuts are to a number of necessary and effective programs. The budget eliminates the heavily oversubscribed Transportation Investment Generating Economic Recovery (TIGER) grant program, which provides flexible funding to effective infrastructure projects, and phases out the New Starts program, which funds railways and buses.

Other infrastructure cuts are spread throughout the budget, including the elimination of the Department of Agriculture’s Water and Wastewater loan and grant program, the elimination of funding for regional Environmental Protection Agency (EPA) programs, and reductions to the Army Corps of Engineers.

Science is particularly hard hit in the skinny budget. The National Institutes of Health (NIH) gets a $5.8 billion cut, a reduction of 18 percent. This is for an agency that is already funded 8 percent below its 2001 level after adjusting for inflation, a reduction that has resulted in NIH awarding grants to only 18 percent of proposals in 2015, down from 32 percent in 2001. The highly regarded Advanced Research Projects Agency-Energy (ARPA-E) is slated for elimination.

The National Science Foundation is not mentioned in the budget but appears to be part of a broader portion of federal spending that would be cut by 10 percent. Overall, the budget suggests that the private sector will make up for these reductions, but it offers no plan to make that happen when the private sector does not get much of the return from investments with large spillovers and uncertain, longer-term payoffs—precisely the kind funded by the programs put on the chopping block. Moreover, reductions in public spending on scientific research are more likely to lead to reductions, not increases, in private spending.

Finally, the budget puts our economic future at risk with a range of cuts to education and training programs—part of a 13 percent cut to the Department of Education and a 21 percent cut to the Department of Labor. These cuts would take a toll on a range of Federal programs that are designed to enable more students to go to college and get lifelong training—going directly against just about the only set of policies that economists across the political spectrum agree would both boost growth and reduce inequality.

Such drastic cuts should not be a surprise but follow inevitably from the basic premise of the budget to finance a defense spending increase with a large reduction in nondefense spending. This is about one-sixth of the budget that has borne the brunt of the spending reductions in recent years, being cut by a sixth in inflation adjusted terms and currently standing at nearly its lowest share of GDP on record with data going back to 1962. The new budget targets further reductions below sequester levels, which would result in a 15 percent reduction in non-defense discretionary spending (including Homeland Security and Veterans Affairs) below current levels.

To be sure, not every one of the programs targeted for reduction or elimination is highly effective. Some of the cuts, like on climate change research, clearly reflect the ideological predilections of the president, others read like the dedicated career staff at the Office of Management and Budget (OMB) did the best they could with the toplines that they were given. But to the degree that we accept the goal of more investment in our future then savings from any inefficient programs could be used to help finance more effective ones, rather than being diverted from these goals altogether.

In what is already becoming a familiar refrain, the administration promises to rectify its cuts to infrastructure in a second prong. But President Trump has made no infrastructure proposal and his campaign plan was deeply flawed, offering tax credits that would provide a windfall for existing privately financed projects while leaving no way to fund the many critical public projects that do not generate a revenue stream. But even this plan is not a priority, instead the budget is part of a push to cut infrastructure, science and education—and to get all of this done by October of this year.

A better alternative would be to build on past bipartisan agreements that included Speaker Paul Ryan and Democrats and paid for equal-sized investments in defense and nondefense discretionary spending above sequester levels. And that could be done in parallel with presidential leadership that follows through on his campaign promise to invest more in America’s infrastructure.