Trump’s Massive Spending Cuts Unlikely to See Daylight

A Wall Street Journal report says that "It's unusual to see the White House's growth forecasts differ from the CBO and other blue-chip projections by such a large margin over such a long stretch of the 10-year budget window." 

Mulvaney, during the briefing, called the CBO's 1.9% forecast "sad."

"I think it's sad that the previous administration was willing to admit that we couldn't get better than 1.9% growth in the next 10 years," Mulvaney said. "I think it's sad the CBO does the same thing. The Congressional Budget Office assumes that we'll never grow at more than 1.9% again, out into infinity."

To get to sustained 3% economic growth, Mulvaney said that "we need folks to work."

"We need people to go to work. If you're on food stamps and you're able-bodied, we need you to go to work," he said during the briefing. "If you're on disability insurance and you're not supposed to be, if you're not truly disabled, we need you to go back to work."

According to Greg Valliere's Capitol Notes, this may be easier said than done.

"The main flaw in that goal is becoming obvious — not enough workers, as state after state reports unemployment rates of close to 3%," said Valliere, the chief global strategist for Horizon Investments.

Medicaid, Medicare and Social Security

The budget proposes to reform Medicaid by giving states the choice between a per capita cap and a block grant and by empowering states to innovate and prioritize Medicaid dollars to the most vulnerable populations.

"We assume the [American] Health Care Act that's passed out of the House that has some Medicaid changes into it, we wrapped that into our budget proposals," Mulvaney said during the briefing.

The budget also follows through on a campaign promise and prohibits any funding in the Labor-HHS appropriations bill for certain entities that provide abortions, including Planned Parenthood.

Also as promised on the campaign trail, the president's budget does not cut core Social Security benefits or Medicare.

The president's budget also funds the administrative component of Social Security at the same levels as 2017, ensuring there are no cuts to customer service for beneficiaries and applicants.

However, according to Valliere, Social Security and Medicare are "where the real money is" and will need to be curbed soon.

"[N]either party wants to go after these programs; even a modest change in the [Consumer Price Index] component of the cost of living adjustment is considered politically radioactive," he wrote in his Capitol Notes. "A pity on the future president who eventually will have to take a meat ax to Social Security and Medicare in a few years."

Market Impact

Bush anticipates some market volatility in September when the real budget debate takes place.

"To the extent that individuals or financial advisors are a little more tactical in the way they invest, we think they're going to find some interesting entry points later this year," Bush said. "Not only with the 2018 budget discussion but also the debt ceiling. Because now the Republicans are going to have to sign off on a 20-plus trillion-dollar federal debt."

Valliere agrees that there are likely to be higher deficits.

"If spending cuts are not realized and tax cuts aren't fully paid for, the major implication is obvious: significantly higher deficits," he wrote in his Capitol Notes.

Valliere thinks there's no question that Trump's spending cuts will be watered down. And while he thinks a tax cut is likely next year, he says the "scoring" will be a problem for Trump.

"Even using very rosy assumptions, his bill would lose trillions of dollars in the next 10 years, so we have a hunch the tax bill will have to be scaled back," Valliere said.

—Related on ThinkAdvisor:

• Advisors on Trump's Tax Plan: Praise, Concern and Shrugs