By Nick Timiraos, Kristina Peterson and Richard Rubin
President Donald Trump, in his first days in office, is being pulled in different directions within the Republican Party and conservative circles seeking to mold his plans for government spending.
Mr. Trump's economic team has taken early steps toward gutting spending on some small domestic programs like the National Endowment for the Arts. But on bigger proposals to increase defense and infrastructure spending while safeguarding Medicare and Social Security, he is colliding with budget hawks and other conservatives pushing for smaller government.
Those tensions surfaced at confirmation hearings Tuesday for Rep. Mick Mulvaney, a longtime critic of government spending and Mr. Trump's nominee to run the White House Office of Management and Budget. Senate Republicans pressed him to recant his past support for defense cuts and to challenge the new president on entitlements.
During the campaign, Mr. Trump swore off cuts to Social Security and Medicare, but Republicans said that would lead to wider deficits or even bigger cuts down the road.
"Mr. Trump did say some things during the campaign that I wish he had not said," said Sen. Bob Corker (R., Tenn) at one hearing. "They are totally unrealistic. Make no sense whatsoever."
"I haven't been quiet and shy since I've been here," responded Mr. Mulvaney, who supported changes to entitlement programs as a four-term congressman from South Carolina. "The president knew what he was getting when he asked me to fill this role."
At a second hearing on Tuesday, Sen. John McCain (R., Ariz.) harshly questioned Mr. Mulvaney's previous votes in favor of cutting defense spending, withdrawing troops and spending bills that led to a government shutdown.
"I would remember if I voted to cut our defenses the way that you did, congressman. Maybe you don't take it with the seriousness it deserves," Mr. McCain said. "I am deeply concerned about your lack of support for our military."
The hearings previewed the looming GOP fight over spending priorities once the new president proposes his first budget. "You're watching the armies that were supposed to be at peace finding new positions on the high ground," said William Beach, a former chief economist to Republicans on the Senate Budget Committee.
Mr. Trump accepted an invitation Tuesday to address a joint session of Congress on Feb. 28. The new president is expected to release next month the outlines of his first budget -- a blueprint for how the president sees government spending -- that will then be fleshed out later in March orApril.
Budget experts tasked to oversee the transition at OMB have been using pieces of a budget blueprint advanced by the conservative Heritage Foundation to push for steep cuts to nondefense and nonentitlement programs, eliminating funding for agencies like the NEA, according to a person familiar with the matter.
Many of the programs earmarked for cuts in the Heritage proposal save only small sums for the government. Eliminating funds for the NEA and the National Endowment for Humanities, for example, would save $300 million, or 0.025% of all discretionary spending.
Several Heritage advisers have been named to Mr. Trump's team, including Paul Winfree, who recently led Heritage's economic policy studies group and was the lead contributor to the Heritage budget blueprint, as director of budget policy and deputy director of the White House Domestic Policy Council.
Welfare programs are also likely to face cuts as the administration "takes the hint that they need to do something on the mandatory spending side," said Mr. Beach, who consulted with the Trump transition team on potential savings in those programs. "I suspect they'll come out with guns blazing on a number of fronts," he said.
The Heritage plan highlights policy divergences among Republicans on spending priorities. It advocated positions -- including overhauls of Social Security and Medicare -- at odds with some of Mr. Trump's stated goals during and after the campaign.
"I'm not looking to pick a fight with the president of the United States, but if his goal is to put the country on a fiscally sound course, he's going to have to address entitlement reform," said Rep. Tom Cole (R., Okla.) in an interview. "Anybody who is going to balance the budget on discretionary spending [cuts] is on a fool's errand."
In a report published after the election, Heritage also called on Mr. Trump to eschew calls for more infrastructure spending. It called for privatizing government assets, such as Amtrak and air-traffic control.
Mr. Trump "should not be taken in by hyperbolic rhetoric about the state of the nation's infrastructure or lured by false promises of stimulus-induced job creation," said one report.
Mr. Mulvaney has been deeply critical of Republicans who have sought higher spending levels in recent years and spoke skeptically of Mr. Trump's infrastructure-spending push just weeks after the November election.
Mr. Trump's aides also have reached out to the Republican Study Committee, a large group of conservative House lawmakers, for budget direction. The RSC budget is typically more conservative than the main GOP budget passed by the House Budget Committee.
The new president faces limited latitude to make good on promises to cut taxes and spend more money because he enters the White House with the debt-to-GDP ratio at its highest level since President Harry Truman took office. He also faces the specter of widening deficits due to rising entitlement spending associated with retiring baby boomers.
Mr. Trump will inherit relatively stable deficits for the next few years, but they will rise steadily after 2018, according to the latest projections released Tuesday morning from the Congressional Budget Office. The forecasts show the deficit shrinking to $559 billion in the fiscal year ending Sept. 30, or 2.9% of gross domestic product, down from $587 billion, or 3.2%, in 2016. After falling to 2.4% of GDP in 2018, they are projected to rise steadily again, reaching 5% of GDP by 2027.
Mr. Mulvaney said the best solution to any budget problem was faster economic growth. But the nonpartisan budget office offered a sobering forecast on that front: It cut its growth estimates to 2.3% for this year and 1.9% next year, well short of the rates near 4% Mr.Trump has said he wants.
The last two times Republicans reclaimed the White House from Democrats -- in 1981 and 2001 -- they secured large tax cuts, but they also enjoyed a stronger fiscal position. In the early 2000s, for instance, the U.S. was projected to run budget surpluses, and federal debt as a share of GDP stood at 31%, compared with 77% today.
Discretionary programs have seen funding decline after adjusting for inflation due to automatic spending curbs known as sequestration that Congress and the Obama administration agreed to in 2011. Federal spending on physical capital investment, including infrastructure, is set to fall to its lowest level as a share of government spending since before World War II.
"Congress has done a pretty good job over the course of the last couple of years to deal with the discretionary part of the budget," Mr. Mulvaney said Tuesday.
Democrats are likely to unite against more cuts, forcing an early test of GOP unity. "The Heritage Foundation may set priorities for the far right in Congress, but it does not set priorities for the rest of America," said Sen. Patrick Leahy of Vermont, who sits on the Senate Appropriations Committee.
Altogether, the Heritage plan offers about $97 billion in discretionary spending cuts for the current year, equal to about 8% of discretionary spending and 2% of total spending. It proposed even larger cuts to automatic spending programs, including entitlements, for a combined $10.5 trillion in savings over a decade, or around 20% of all government spending. But the entirety of its proposals might not make it into Mr. Trump's impending budget proposal.
"There is no way on God's green earth that plan has any chance of becoming real," said William Hoagland, a former congressional GOP budget aide who is now at the Bipartisan Policy Center in Washington.
Without Democratic support, Republicans can afford relatively few defections on any budget blueprint, and a big intraparty fight over the GOP budget threatens to delay the administration's top priorities.
Congress doesn't have to pass a budget resolution -- until 2015, it hadn't passed one since 2009 -- but the Republican agenda rests heavily on doing two this year, both of which would be legislative vehicles for major policy priorities. A fiscal 2017 budget passed earlier this year is earmarked for repealing the Affordable Care Act, while the coming budget would help Republicans overhaul the tax code. Using the budget process enables Republicans to clear legislation through the Senate with a simple majority.
Write to Nick Timiraos at firstname.lastname@example.org, Kristina Peterson at email@example.com and Richard Rubin at firstname.lastname@example.org
(END) Dow Jones Newswires
January 24, 2017 17:42 ET (22:42 GMT)
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