President Trump's economic adviser Larry Kudlow, speaking to conservatives at a private dinner on Wednesday night, said the administration had no plans to touch large entitlement programs, but would address deficits by going after Obamacare, adding work requirements to smaller entitlement programs, and spurring economic growth.
During the dinner, hosted by the American Spectator, Kudlow focused most of his remarks on the booming economy, which he attributed to the Trump administration ending the Obama era "war on business" through deregulation and tax cuts. "We're crushing it," he boasted of the U.S. economic indicators, citing a number of indicators including growth and higher wages.
I asked him whether he had any concerns that the tax cuts he had been touting would be unsustainable given the administration's unwillingness to address the looming entitlement crisis. (Medicare and Social Security are carrying a $100 trillion long-term cash deficit.)
“We have no plans to tackle the large entitlement programs," Kudlow acknowledged, referring to Medicare and Social Security. But he went on to explain three ways be believed the Trump administration would address deficits, including by targeting Obamacare.
His comments come as Democrats, on offense on the healthcare issue during the 2018 midterm elections, are seizing on comments made by Senate Majority Leader Mitch McConnell, R-Ky., about the importance of addressing entitlements and of his willingness to have another go at repealing Obamacare if he has the votes.
Kudlow emphasized, first, “Economic growth really matters. Huge. The difference between two percent and four percent is very significant in budget terms.”
Second, he said, “We’ll continue to go after Obamacare. We’re making great gains. Both regulatory reforms and we’ll come back for legislative reforms.” Though he later acknowledged that if Democrats took over the House, it would be difficult to get much accomplished legislatively.
Third, he said that serious talks were underway on adding work requirements to smaller mandatory programs.
“President Trump is really pushing hard for ‘workfare’ regarding the smaller entitlements – food stamps, whatever welfare’s called now, Social Security disability – there’s a whole bunch of them," he said. "We’re in the midst of this discussion, in fact….The Gingrich/Clinton [welfare] reforms are gone, unraveled by both Republican and Democratic presidents and Congresses and [these programs] are a discouragement to work. And they cost a lot of money. If you take the small entitlements and you take the non-defense discretionary, that is actually the bigger budget than the large entitlements. This is the work of [White House budget director] Mick Mulvaney...So, the president today instructed the cabinet to cut their spending, non-defense discretionary spending, by 5 percent. He was adamant. That’s going to make a gigantic difference as we follow through and we will follow through.”
Closing the long-term fiscal gap without touching the larger entitlement programs is going to be challenging. According to the Congressional Budget Office, over the next decade, Medicare and Social Security will account for 70 percent of all entitlement spending, defined as "mandatory" for budget purposes, with the remainder, including defense, defined as "discretionary" and thus subject to regular authorizations from Congress.
Looking at the budget as a whole, Medicare, Social Security, and the defense budget (all of which have been taken off the table), are expected to cost $31.7 trillion from 2019 to 2028, or about 64 percent of all non-interest spending. Making a serious dent in spending without touching any of those three areas would require severe cuts to the remaining programs.
Kudlow, however, also argues that economic growth will boost revenues, and thus help close the gap.
"I still believe in a minimum of 3 [percent] and I like what I’m seeing because it’s above 4 [percent]," he said. "The CBO is at 2 or 1.8. And the rule of thumb here is CBO’s rule of thumb, if you grow the economy one percent faster than the baseline over 10 years you knock off deficits by $3.5 trillion. I’m betting on that. In fact, it’s already happening. In fact, the CBO has already made revisions -- they just won’t admit it has anything to do with our tax cut. Okay, fine. I get that. They’re wrong.”
Earlier in the dinner, Kudlow addressed the topic of trade, and expressed skepticism that Chinese leaders wanted to cut a deal with the U.S., and said he was not optimistic about Trump's planned meeting next month with Chinese President Xi Jinping.