Trump’s budget proposal plans a disaster for public investment
Today the White House laid out its priorities in its first budget blueprint. And these priorities are simple enough to describe: paying for increased spending on defense and border security with cuts across the board to nondefense discretionary spending (NDD). Among other reasons why these are bad decisions, they would have devastating consequences for public investment.
It’s worth looking at one specific cut that seems fairly telling. Despite campaigning on a $1 trillion infrastructure program, the president’s budget actually cuts the Department of Transportation’s funding by 13 percent. Coupling this cut with the fact that the campaign’s original proposal was simply not a serious plan, and the rumors that the president and Congress are punting infrastructure to next year, it starts to become increasingly clear that increased infrastructure investment isn’t a promise that the Trump administration is taking seriously.
The broader cuts in the budget blueprint foreshadow an even worse fate for overall public investment. NDD is only about 16 percent of all federal spending, but fully half of it is public investment. The Trump budget essentially puts a long-run decline in NDD spending on overdrive. NDD budget authority fell from almost 7 percent of GDP in 1977 to about 3 percent by 1990. It has hovered around 3 percent since then, beginning a slow decline in recent years. The administration’s budget intends to accelerate this decline, reducing NDD spending swiftly and sharply from 2.8 percent of GDP in 2016 to 2.3 percent by 2018.
The administration’s budget blueprint would sharply accelerate the decline of nondefense discretionary spending: Nondefense discretionary budget authority as a share of GDP, excluding supplemental spending, 1979-2018
|Year||Historical and president’s Budget|
Source: Author’s analysis of Office of Management and Budget data
With cuts to higher education funding, worker retraining programs and basic research, the administration seems to have a single-minded focus on cutting any research that may help us learn something for the future. To put it bluntly, this is the exact opposite of what the economy needs. Economic productivity has decelerated substantially over the past four years, associated with a steep decline in growth of the nation’s capital stock. And with interest rates still low, now is not the time to exacerbate this decline, but rather to reverse it, with an ambitious increase in public investment that can financed by historically cheap borrowing costs.