James S. Brady Press Briefing Room
4:16 P.M. EST
DIRECTOR MULVANEY: Thank so much for doing this, and I want to explain why we’re doing this on the record but off camera. This is going to be really, really boring and really, really hard.
Q Don’t sell yourself short, Director.
DIRECTOR MULVANEY: Yeah, no, this is going to be awful. (Laughter.) I think I’ve aged about —
Q Your tie looks good.
DIRECTOR MULVANEY: The tie looks good, that’s exactly right. No, we’ve — you cannot imagine the amount of work these people have done in the last couple days.
Here’s what’s happening, is that we’re actually doing two budgets, okay? Remember last year, when I came out, I did sort of half a budget? We did a skinny budget in March and the other budget in April, or something like that.
Well, we’ve gone whole-hog now. We’re doing two budgets now because what we’ve had to do, in the last three days, is take a caps deal and incorporate it into our ’18 budget that we did last year, and then also try and incorporate it, to a certain extent, into our ’19 budget.
Let me tell you what that entails. We started on the ’19 budget in — is it June? About? Okay. So, which means we put about seven months’ worth of work in the last three or four days on the ’18 and the ’19 budget. And it’s going to get a little bit difficult as I walk through the changes that we’ve made to ’18 and the changes that we have made to ’19.
We probably could have waited to go through a thorough analysis so — yeah, by the way, my hair is going to look like this for the whole rest of the time. That’s one of the reasons we’re off camera.
Q You’re not pulling it out, are you?
DIRECTOR MULVANEY: No, it just does that at the end of the day when I’ve been doing this.
It probably would have taken to us until April — maybe March; April; maybe May — to fully incorporate what happened on Friday into the ’19 budget. And even today, some of the numbers that you are going to see are not exactly precise. Not to say that they’re not good numbers; they are really, really solid numbers. But there are things that would literally take us weeks to, sort of, work into the mathematical calculations in order to get the ultimate impact.
An example, for sake of discussion: the deal on Friday extended the mandatory sequester by two years. It’s really hard to figure out what the impact of that is 10 years down the road.
So, the numbers are really solid numbers. They’re just not the exact same as they would be if we had taken the three or four months to crunch them through.
So, I’m going to go through ’18 and I’m going to go through ’19. I’m going to deal, up front, with the question that everybody wants to ask — and I don’t know who would’ve gotten a chance to ask it first — is this dead on arrival? That’s the popular question that everybody asks. In fact, they were asking it this morning on television. And the answer is absolutely not. It simply highlights the fact that this is a messaging document. The executive budget has always been a messaging document.
What are the messages this year? There’s two primary messages: Number one, you don’t have to spend all of this money, Congress. But if you do, here is how we would prefer to see you spend it. That is message number one, and I’ll explain that more in a couple minutes.
And the other message is that we do not have to have trillion-dollar deficits forever. And that will become really apparent as we walk through these two things.
So, if I can bring up, please, slide number one. I’m going to show you what we’ve done to the ’18 budget, okay? This is the budget that you folks saw back in the springtime with the spending levels for defense and non-defense discretionary. All right?
We have changed those in order to accommodate what happened on Friday night. By the way, don’t forget all these people actually did this through two government shutdowns, if you can believe it or not.
So, what we did is we went ahead, and with the President’s approval — in fact, his direction — we went ahead and spent everything from 2018 with the exception of some OCO. We moved some money from the non-defense discretionary OCO — Overseas Contingency Operations — mostly the State Department — off of OCO and onto the base budget.
But for the most part, we went ahead and spent what Congress said they wanted to spend for ’18. So, this is the appropriations process that will start now. Remember, the bill that passed on Friday did not really spend any money for next year. It spent some money on some programs and so-forth, but when it came to funding the government for ’18, that was not an appropriations bill. All it did was set the spending caps for an appropriations bill that needs to pass before the CR expires at the end of March.
So this is us weighing into that debate. If you are going to spend all of this money, Congress, here is how we are going — here is how we would like to see you spend it.
So, if you go to slide two, we’ll go over the changes that we made to get from the old ’18 budget to the ’18 budget that we are sending back to the Hill today. And I’ll make that clear — we sent a bunch of stuff to the Hill today, in addition to the ’19 base budget, we sent the addendum that changes the ’19 budget — I’ll talk about that in a second — and also the notes that take our old ’18 budget and get it to this.
Everybody knows about the defense. We spent $26 billion extra on defense to get us up to the level that they talked about during the (inaudible) discussion — which is the $700 billion for last year. For ’18 — for this year.
An increase to our budget last year of $117 billion. The big pieces of that puzzle are as follows: you can see here, $34.5 billion for infrastructure. That includes the first piece of the infrastructure bill that the President rolled out to Marc. Keep in mind, we talk about a $200 billion program. That’s not $200 billion in year one, it’s not $200 [billion] in year five, it’s phased in over several years. And what we’ve said was, “Okay, if you’re going to raise the caps for 2018, let’s go ahead and spend some of that $20 billion on the administration’s infrastructure initiative.
We added another $15.7 billion for border security, bringing us up to $18 billion for the border wall across both of these things. What does that mean? That means we’re anticipating a DACA deal. All right? We fully anticipate getting some type of deal on DACA that would provide for the building of the entire southern border, and all of the infrastructure that goes with it. That’s $18 billion. Most of it’s in ’18. You’ll see that some of it is in ’19, but we added some of the money that we’ve added back for additional border security.
We added $3 billion for opioids, I’ll talk more about that in a few minutes. We also add a bunch of money in ’19 for opioids. People will say, “Well, you spent” — the number for ’19, by the way, is $10 billion — and they say, “Well, why are you spending $3 billion this year and $10 billion next year?” The answer is — keep in mind, there’s only about — by the time they pass a deal — an appropriations deal in March, if they do pass one in March there’s only going to be, what? Six months left in the fiscal year. So, you don’t have all of ’18 left to spend all of this money.
So, we spent $3 billion for opioids. IT modernization, a big priority for the President, doesn’t get a lot of attention. It’s one of those boring, non-glamorous things we do in government, but we are trying to update our IT.
R&D — a big plus-up in in R&D. In fact, when we talked last year — we’ll talk about it again for ’19, for this year — total R&D spending actually increases in both of our budgets. Our ’19 budget is bigger than ’17; our ’18 budget is bigger than ’17. Which reminds me, by the way — and this is one of those little wrinkles that’s sort of hard to follow — when we talk today about increases over last year — when I talk about that on ’19, I have to compare that to ’17.
I’ll say that again, when I talk about what ’19 does compared to last year, that will be ’17. Why? Because the ’18 spending levels haven’t been set yet. We’re still operating under this CR. And while those caps have been set for ’18, Congress has yet to appropriate within the subcategories how money’s going to be spent, and how many will be spent at the programmatic level.
So, when you hear me say, “NASA gets X number of billion dollars more than last year,” that’s compared to ’17 and enacted for exactly that reason.
We’ve moved a bunch of, like I said, money off of OCO over to the bases primarily in the State Department. Keep in mind, the OCO budget had been used for several years as a way to get around the caps. Many of us believe, in fact, both Republicans and Democrats believe that it had been abused and misused in order to get around the caps. We took advantage of this additional money to go ahead and fix that problem permanently, and we moved money off of OCO into the base. Add to that the other $17.7 billion of budget gimmicks.
For those of you who are really geeky and you want to talk about CHIMPs, we can talk about that afterwards. But for the most part, we plug a lot of the old smoke and mirrors that budgets typically use to try and stay within the caps. And the $23.8 billion is spread about a bunch of different things.
Q What is that? Can you explain the —
DIRECTOR MULVANEY: The $23.8 [billion]?
DIRECTOR MULVANEY: It’s a long list, and I think we’re going to — are we going to produce a list of the ’18 add-backs and the detail? We only do that on ’19.
Q Can you give us some highlights of it? It’s up there.
DIRECTOR MULVANEY: Honestly — I honestly don’t have that in front of me, and I apologize. But yes, we can get you details about what the $23.8 [billion] is.
Q But that’s non-defense? Yes?
DIRECTOR MULVANEY: This is all non-defense, yeah.
DIRECTOR MULVANEY: The defense is up here. This is all non-defense.
Keep in mind, this is across every other single part of the government, so they could be small amounts. There’s just a lot of them.
All right, so that’s ’18. So, we took the old budget from the springtime, then we added $26 billion for defense, $117 billion for non-defense, and that is what we’ve sent to the Hill and say, “Okay, if you are going to spend all of this money, this is how we would prefer to see you spend it.” Obviously, the administration’s priorities are infrastructure, opioids, southern border wall — those types of things. Not going to be a surprise to anybody.
If I go to the next slide, I’ll start talking about ’19. This is what we were working on up until last week. Because that was the cap before the caps deal from last Friday. So this is what we’ve been working on for the past half a year or so as we wrote the budget.
On Friday, they raised the caps to this. As we sat down to try and figure out what we would do for ’19, we decided not to spend all of it.
Again, go back to that message — one of those two topline messages. If you’re going to spend it all — you spend it like this, that’s ’18 — but you don’t have to spend it all. These are spending caps. They are not spending floors.
And as we sat and looked at the administration’s priorities, we didn’t think it was necessary to spend all the way up to here in order to fund the government and in order to fund our priorities.
So let’s talk about going from here to here, by going to the next slide, please.
All right. So as you can see, we added some money to — I’ve got some details on. I do have some details on this, so give me just a second. And I have more paper. I have more numbers here, folks, then you can —
Q Can you answer a couple of questions about your defense spending?
DIRECTOR MULVANEY: I can try. But if we can keep questions to the end, that would be a lot easier.
Russ, have you got the long list of the additions to the ’19 budget by any chance? Yeah, thanks. That’s the one.
So these are the ’19 — we’ll hit some highlights on the ’19 budget. You can see it, graphically, here. But we plussed up Agriculture — $192 billion. Department of the Education went up by $3.3 [billion] — excuse me, $192 million for Ag — $3.3 billion for Education. The biggest piece of that had to do with the Pell program. We’ll talk about that in a second.
Department of Energy went up by $1.5 billion. This is all off of the budget we were working on before the caps deal was cut. The Department of Energy’s Office of Science went up by $1.2 billion.
Health and Human Services got the biggest piece. Health and Human Services — $15.8 billion in HHS. The biggest chunk of that is NIH. You all will remember that I came here last year and I tried to present to you a proposed $9 billion reduction in the NIH grants. I think it went from $35 [billion] down to $26 billion. We put it back in.
I learned a really valuable lesson last year. Not only did Congress not like our proposed NIH cuts last year, they made them illegal this year.
Remember last year, I came to you and I said, look, we want to reduce spending on NIH and the way we want to do it is by forcing the programs to look at their administrative costs. Because if they could get their administrative costs down to what they actually pay on administrative costs from private grants, we could cut $9 billion in spending and get the exact same amount of research. Do you remember that conversation, for those of you who were here? I certainly do.
Congress, when they passed the appropriations bill in April, said not only are we going to plus it back up to the $35-odd billion dollars or whatever it is, but they put a rider in that said it was against the law to spend any money to do analyses on the administrative costs. So they prevented us, by law, from trying to save money.
So I learned my lesson, and we said, “Okay, we got this extra money to spend.” We put another $9 billion in NIH, which makes up a big piece of the $15.8 [billion]. Another $5 billion there is for opioids. We’ll talk about that in a second.
Health and Human Services went up another $11 billion. Another $5 billion there for opioids. The opioids money is split between two different pieces of HHS, and health centers get a big chunk of that, too — about $5.7 billion.
Homeland up by $1.5 billion. Department of Housing and Urban Development by $2 billion, including another billion for elderly and disabled tenant rent contributions. Interior up by $340 million. Justice by $12 billion. That was mostly a CHIMP, they use a CHIMP in the Crime Victims Fund to sort of push the — do the smoke and mirrors. Again, if you care about that, we can talk about that offline.
Labor up $1.5 billion. State up $1.5 billion. Primarily, it’s State. The International Humanitarian Assistance, we’ve plussed up by $1 billion.
Transportation up by $300 million for (inaudible). Veteran’s Affairs, $2.4 [billion] — most of it going to the Veterans Choice Program, that was an additional $1.9 billion.
EPA up by $724 [million], and NASA by $300 million. We talk more about that in detail.
By the way, this is a good place for me to stop and say, look, I know we’re throwing a bunch of information at you. I know that we’re not doing it the same way we did last year, where we’re coming out on day one, and doing this, and coming back the next day, and doing an on-the-record hearing because I have to go on to the Hill tomorrow, do the Senate tomorrow morning, the House after that.
So I recognize the fact that you won’t get a chance, probably, to get as granular in the questions as you want to. But if you could reach out to John Czwartacki after this, we’d make time for you, on an individual basis to go over specific questions on specific line items.
I do ask — no, and I’m not done yet. In fact, I’m not close to being done yet.
I do ask, before you start writing stuff that say that we’re funding “X” for this year, to please check with us to make sure you’re using the right number. Because there are so many numbers floating out there, and I’d hate to have somebody write an article that talks about this but ignores the fact that we just spent a bunch more money on the program that you wrote about there.
So those are the big additions to ’19. Let’s go to slide five, please. Talk about some of the macro — oh, these are the highlights we all were talking about. Defense goes up — non-defense. I’m going to come back to a couple of these in some details in a second.
Actually, let’s do it now. Let’s do it now. Let’s talk about some of the things that we’ve got. We’ve talked about defense. You folks all see — that’s $716 billion for FY19. This is the full request that the Department of Defense had. By the way, that is what we call the “050 function.” That is national defense, writ large. The actual DOD number is $670 [billion] and something like that, or something like that.
Because, keep in mind, there are some defense functions that are not in the Defense Department. So if you see the allocation to the actual Department of Defense, and it doesn’t equal $716 [billion], that’s because — for example, the Department of Energy handles all the nuclear weapons. So a part of that goes there. And there’s a couple other programs.
STAFF MEMBER: $686 [billion].
DIRECTOR MULVANEY: $686 [billion] is the total. But when you take all of national defense — what we call the “050 function,” the way they appropriate on the Hill — it is the $716 [billion] that General Mattis talks about. And everybody knows that that’s the case. So it’s not like we’re hiding the ball on that.
No, believe me. I’m not done yet.
Drug prices. Some really, really good stuff as we go through the President’s priorities for this year. Again, we’re funding — we’ve increased funding and we’ve focused on ’19, on the President’s priorities. We’ve talked about defense. We’ve talked about infrastructure. I could talk about that a lot, but I know you folks have already — if you have some questions about that, we can do, but I think you’ve got the details already on infrastructure.
Drug prices. This is probably the stuff you folks are seeing for the first time. I was really excited when the President actually put that in the State of the Union Address. I was one of the few people — I got a chance to see the full speech. And it started off as a fairly long speech and got whittled down and whittled down and whittled down. And to see that drug prices made it into that final draft was a big plus, I thought.
You’re going to see a major commitment by the administration in both additional spending and reforms to get drug prices down this year. The FDA is looking at a total increase of over $1 billion. That’s almost a 22 percent increase off of ’17 enacted.
This is one of our primary examples of spending more money on things that work. Scott Gottlieb has shown an absolute ability to increase the flow of generics into the market and to save money. This administration will save seniors over $300 million this year already because of the work that the FDA has done on generics.
So you’re going to see a major commitment on us here to increase spending on FDA to try and increase the flow of generics, increase the approval of new drugs, to do exactly what the President talked about during the campaign, which is get the regulatory hurdles out of drug approvals and get more drugs to market faster.
On Medicaid, we’ve got a couple changes in Medicaid that will drive down drug prices. One of the ones we talk about is the way to — the Inspector General actually found a bunch of examples of drugs that were mistreated as branded drugs when they should have been generic and it cost us an absolute fortune.
We’re going to try and — we’re proposing now in this budget to change the rules, to make clear that things like the EpiPen should be a lot cheaper than they are. Keep in mind, we’re one of the largest purchasers of drugs in the United States. In fact, I think the government probably is, through Medicaid and the VA and Medicare.
So when we can figure out a way to save money on programs like that, it goes straight to the bottom line, critically, without reducing anybody’s benefits.
When we talk about Medicare, we talk about Medicaid today — and I’m going to finish by talking about some Part D stuff — we are talking about things that lower drug prices and save money for folks who are in these programs. We are not talking, in a single instance, about denying anybody coverage, raising anybody’s age, doing any means testing.
It’s the same message you heard last year. The President was not willing, because of the promises he made on the campaign trail, to deal with those entitlement programs. But I think I can make the case to you that figuring out a way to get drug prices down is absolutely consistent with his campaign promises.
We’re also going to try and clarify the Medicaid definition of brand versus over-the-counter drugs, and biologics and — oh, this is interesting — we’re giving the states — we’re giving up to five states, within Medicaid, a test program to allow them to try to limit their formulary and to negotiate drug prices.
People always ask all the time, “Why don’t you all negotiate drug prices?” Well, if you always are going to admit every — just have every drug in the world on your formulary, negotiating prices doesn’t do anything because people know you have to take the drug at the end of the day. And you have to be able to limit your formulary — the drugs that you will cover — in order for negotiation to make any sense at all, to have any effect at all.
So we’re proposing, through Medicaid, to do a test program with up to five states — to allow them, if they want to, to limit their formulary and then negotiate drug prices on their own.
Q Are you talking about inelastic versus elastic?
DIRECTOR MULVANEY: No, I’m not. Come on now. Give me a chance —
Q Okay. I was just asking.
DIRECTOR MULVANEY: All right. Good. No.
Part D — we talk about Part D proposals. A couple different things here. As many of you know who follow the healthcare industry, a lot of the manufacturers provide rebates to the various health plans. But seniors very rarely, if ever, see it. So what the senior is paying out of pocket isn’t really impacted by the rebate. One of the proposals here is that, at least one-third of those rebates have to be passed on to the purchasers at the point of sale. It’s going to have the impact of lowering the out-of-pocket costs to folks who are on Medicare.
We’re establishing a true — for the first time — true out-of-pocket cap for seniors. Once we start lowering these prices we can do that. Right now, there’s an incentive for drug companies to try and rush people through the doughnut hole to get them to catastrophic, where the government picks up big chunks of the cost. And we’re trying to figure out a way — we’re actually proposing ways to get rid of those incentives.
And then one of my favorites is, we’re limiting the amount that they can raise prices within Medicare. I think is in Part B not Part D. But right now — and I had no idea — that once, if I take your drug onto my formulary in Medicare and it’s $100, next year I don’t limit the amount that you can raise the price. In fact, I do, but it’s not much of a limit. And drugs actually get more expensive as they stay on the formulary longer, which is absolutely crazy. That’s the only business I know where a products get more expensive the longer they’ve been on the market.
So one of the things we’re doing, is we’re limiting the increases in those prices to actual cost of inflation. That by itself saves us a tremendous amount of money.
Lastly, within — well, we’re doing a couple other — the last thing on drug prices: the 340B program. I think this is getting a little bit of attention because I saw some ads on that on television. Right now, there’s some folks who game the system. There’s folks who don’t. There’s companies — health providers that don’t provide charity care so they can’t take advantage of the 340B program. And what they do is they’ll buy small, private providers who do provide charity care, and then they’ll take advantage of that to apply 340B treatment to their entire system. Did I get that right, Grogan?
MR. GROGAN: Yep.
DIRECTOR MULVANEY: Good.
All right, so that’s a lot of things we’re doing on drug prices. Opioids, again, $3 billion last year, $10 billion this year. On top of that, I think there’s a couple hundred million dollars — there’s $100 million from us on a pilot program we’re trying to do with NIH to specifically get private industry to participate in research, to get us to non-addictive pain — a pain replacement for opioids. One of the most interesting things, I think, we’ve come up with — very excited about that work.
SNAP. Food stamps. A couple of changes there. We’ll hit the highlights. You may have heard about this already: the Food Box Program. One of the most innovative things — actually, I think it originated at the USDA. Secretary Perdue wanted to give it a chance. We thought it was a tremendous idea so what we do is propose that, for folks who are on food stamps — part, not all — part of their benefits come in the actually sort of — and I don’t want to steal somebody’s copyright — but a Blue Apron-type program where you actually receive the food instead of receive the cash. It lowers the cost to us because we can buy prices at wholesale, whereas they have to buy it at retail. It also makes sure that they’re getting nutritious food. So we’re pretty excited about that. That’s a tremendous cost savings.
We’re also — contained within SNAP and a lot of the other welfare programs — a lot of the able-bodied work requirements that you’ve heard us talk about last year, and during this year. Repeal and replace Obamacare — that’s fine, we talk about that. We talk about welfare reform, that’s mostly focused on able-boded adults. Medicare, we talked about some that. Drug prices.
That farm bill subsidy, same as last year where we try and limit the subsidies to farmers who have adjusted-gross incomes of less than $500,000 — AGI of less than $500,000. Not only, on an orderly year, are we still going to cover 98 percent of farmers with that, as I point out to all my farm friends, when you have a bad year, your AGI will drop below $500,000 and you would qualify for some of the benefits and so forth.
So that hits the highlights on 2019. If I go to the next slide — I’m almost done, I promise. Macro, because we get a lot of this. We’ve changed the macroeconomic assumptions from last year slightly, as you would imagine. Here would — our assumptions last year for the GDP growth. Remember we had 2.3, 2.5, 2.8, and then we ramped up to 3.0 [percent]. Yes, I will take some pleasure in realizing that a lot of you accused me being crazy when I said that.
Q Why do you point at me? (Laughter.)
DIRECTOR MULVANEY: Because you just think I’m crazy anyway. (Laughter.) So, like remember we —
Q That doesn’t mean we don’t love you.
DIRECTOR MULVANEY: I mean, listen, I’ll take 15 seconds to pat ourselves on the back. We did even better. I mean, there are people who thought we were crazy to introduce 2.3 last year and we blew that out of the water. I can’t wait to go to my Senate House hearings and talk to some of my friends, including my old buddy, Chris Van Hollen, who said it was the craziest thing he’s ever seen.
We beat that number last year. So I think it’s completely reasonable for us to ramp things up a little bit. We came up to 3.1, 3.2, we do think — obviously, we think we can hit all of these numbers. You will notice that, towards the end, we tail off instead of maintaining the 3 [percent] all the way across. That was just a — that was from the CEA, driven — that’s part of the normal business cycles. We don’t expect it to actually stay 3 [percent] the whole way.
On interest rates, we did two different ways. The 90-day Treasury and a 10-year Treasury. We came up a little bit on the 90 and then down a little bit on the 10-year, just because we think that’s what the reality has looked like.
So, on the CPI, the same thing. We thought we’d see inflation a little bit higher. We continue not to see it. So we’ve adjusted our inflation down a little bit, just for the couple of years. You can see on the “out years,” a lot of these numbers are almost entirely the same.
The unemployment numbers, similarly — our experience, with a years’ worth of — under our belts — has been that the rates are trending a little bit lower than we expected.
Keep in mind, if we end up missing here — and a lot of folks will say, “Well, Mulvaney, what happens if you end up with an interest rate here next year because of 3.6?” Well, one the primary driving reasons of that would be if the GDP number is actually higher than we expect it to be. Keep in mind, one point increase in GDP over the 10-year window is roughly $3.25 trillion off of the deficit.
One additional point, here, across ten years, takes the deficit down by $3.25 trillion. Yes, an interest rate up of a 100 basis points, or 1 percentage point, costs us about 1.5, $1.6 trillion in that same year. But as long as we’ve got GDP growing fast, we’ve got interest rates, the deficit will be going down.
Lastly, it’s not shown here, but folks are going to ask me about the impact of the tax bill on revenues. And yeah, you’re going to see a spike in the deficit over what we had originally expected this year because we — tax revenues are going down.
But our analysis already shows that over the 10 years — and I don’t have a slide on this one, so we just got this one in this afternoon — over the 10 years, we will actually — we are generating more money for the Treasury than the CBO baseline that has — that was written before the tax bill.
So the tax bill actually does generate additional saving, additional revenue to the Treasury than we’d have without it. In fact, in the last year, that both our budget and the CBO baseline line up — we’re generating almost $400 billion extra every single year because of the tax bill, and because of our growth assumptions, and the growth we’ve already experienced. And that number just continues to get bigger, out into the future.
You do have increased deficits for the first five years because revenues are down.
All right, lastly, if I can go to slide seven, please. All right, so this is the question, right — does it balance? No, it doesn’t.
I said last year — in fact, I want to get this right — I did an interview last year with the Washington Examiner, and it said, “The longer we wait to make the reforms, the spending proposals that we made in last year’s budget, the harder it gets to actually balance.” That’s why I don’t think we would be able to balance the budget next year unless we actually make some of the changes this year that we proposed. And we didn’t. In fact, we didn’t make hardly any of the proposals.
I think there’s probably — we sent up $54 billion worth of savings last year to the Hill, and they took about $5 billion worth of it. They didn’t make any of the large structural changes that we proposed.
And listen, I probably could have made it balance, but you all would have, rightly, just absolutely excoriated us for using funny numbers because it would have taken funny numbers to do it.
These are real numbers. We have a lot fewer plugs in here this year, mostly because we have better data. Remember, last year, it was a transition budget. We have a lot fewer plugs this year. We have a lot more support for these numbers. These numbers are good numbers. And I’m very proud of the work that the folks at OMB have done to give us solid numbers. But I couldn’t come in here and tell you, using solid numbers, that we can balance in 10 years, because we can’t.
And I think there’s — I hope there’s some value in being honest with people about what the fiscal situation is. But we don’t balance during the 10-year window. What we do do, however, is we’re able to turn the tide, to turn the trajectory, especially when you measure GDP — or debt as a percentage of GDP. We peak about 80 percent here in ’20, ’21, ’22. We get it down the other way.
If I could go to the next slide, please. And you can see the difference between what we’re proposing in our budget and what we think the real world looks like. The real world here is blue, and our budget is orange.
What was the second message of this document? The first message: You don’t have to spend it all, but if you do, this is how you spend it. The second message is: We are not condemned to trillion-dollar deficits forever. There is a way out of this. By the way, we do all of this, okay, without changing Medicare — or at least the benefits that people get with Medicare. We’ve always talked about the drug stuff without changing the major parts of Medicare or without changing Social Security retirement.
There is a way to get off of this treadmill of trillion-dollar deficits, but we have to take the spending side extraordinarily seriously.
The budget — and I’ll close with this — the budget represents $3 trillion in savings over the course of the 10 years. It’s the second largest proposed reduction in spending ever, second only to last year’s budget. It’s $1.7 billion in mandatory savings, which I think is —
STAFF MEMBER: Trillion.
DIRECTOR MULVANEY: $1.7 trillion. Excuse me, $3 trillion in total savings over the 10 years, and $1.7 of that — $1.7 trillion is in mandatory, which I think is the largest ever.
So the President — no one can say the President doesn’t take this seriously. We are not, sort of, resigning ourselves to trillion-dollar deficits forever. He is making some tough choices, but he’s doing it in a smart way that will still allow us to fund our priorities, to run the country, and to see tremendous economic growth.
With that, I’ll take some questions. Yes, sir.
Q You had talked a little bit about who are the budget winners, if you will. Potentially, who would be the budget losers?
DIRECTOR MULVANEY: How would you define a loser? My guess is, a loser would be a program that doesn’t work.
Let’s give you an example of that. Workforce — I forgot to talk about workforce. It is a priority for us, and I just didn’t make the screen, and I apologize for that. In workforce, a classic example of how we try to set up this budget: The winners are the apprenticeship programs. The losers are things like Trade Adjustment Assistance, okay? We reform TAA. Why? Because it doesn’t seem to work. In fact, the data that we have seems to suggest that folks who go through that program actually end up in lower-paying jobs than folks who don’t go through the program, okay? So there’s a program that screams out for either less spending or reform, or both.
The flipside of that are these apprenticeship programs where we actually have some hard data that says that people who go through the apprenticeship programs actually come out with more pay and better jobs on the backend. And for that reason, we double funding, within this FY19 budget, for the apprenticeship programs.
So the answer to your question is, the losers — to use your word — are programs that don’t work anymore.
Q I wanted to ask — this is mentioned in the budget — about civil service reform. It uses the term, “Hire the best, fire the worst.” How hard is the administration going to push for that, in terms of —
DIRECTOR MULVANEY: Thanks for that, because that didn’t make the high level of the presentation. The proposal on hiring the best, firing the worst works like this. You’re going to see that we did not propose a civilian pay raise this year. Instead, what we’ve done is we’ve set up a $1 billion fund with an idea towards giving managers the ability to pay people whose performance actually merits the increase, as opposed to giving folks automatic increases. I don’t remember the numbers off the top of my head, but it’s in the high 90s of federal workers get automatic, performance-based increases every single year.
STAFF MEMBER: 99.7 [percent].
DIRECTOR MULVANEY: 99.7. Like I said, it’s —
Q 91 or —
DIRECTOR MULVANEY: It’s 99.7 automatically get performance-based increases every year. I think it’s fair to say that maybe that’s not a true performance-based indicator.
And what we’d like to do is simply say, look, if you are one of those folks who really is a good government worker, you should get a raise. If you’re not, you’re not. In fact, our own internal studies at the government level point that one of the top complaints by federal workers about their job is that their pay is not tied to their performance. And they see folks who they know aren’t pulling the weight getting the same increases that the folks who are pulling the weight are getting, and that’s very frustrating to them.
So one of the biggest things we’re trying to do through the management — of the “M” side of OMB — remember, “M” is for Office of Management and Budget — is to change the way that we hire and fire. But to this point, specifically, pay.
I’ll go there in a second. I promised this young lady the next question.
Q Thank you. I want to go back. You addressed this just a little bit, but I want to go back to this claim by the administration that the tax reform bill would wind up paying for itself. This year, though, it looks like revenues — revenues are sharply lower. If you look at last year’s revenue baseline for 2018 to ’27, it was almost $47 trillion. But if you plug in this year’s baseline for those years, it equals $3.7 trillion less. How does that work?
DIRECTOR MULVANEY: Yeah. A couple of different things. First of all, you’ve asked, sort of, two different questions. The idea of the tax bill reaping the benefits is a long period thing, but you also said the impacts for this year.
But let’s look at the long period, because you’re absolutely right, there is about a $3.7 trillion difference. And in talking with Treasury — and we’re getting more guidance on this tonight, I understand, from Treasury — that breaks down as follows: About $1.4 trillion of it is what the Treasury calls their technical adjustments. These are adjustments that Treasury makes to their formulas and their methodology every single year.
And they will tell you, and you get more detail on this from Treasury this evening, and Mnuchin — Steven Mnuchin and I are both testifying this week about this, so we’ll have more data on this — is that these are about $1.4 trillion in changes that would take place without the tax bill. Okay? So you take part of $3.7 and throw the $1.4 away.
Half a trillion dollars of it is we assume that the individuals tax rates are extended, that the cuts to the individuals rates are extended throughout the budget window. And that costs an additional half a trillion dollars. So that’s above the technical bill. Right? The bill — we all talked about how the fact the bill was written in such a way as to score, in a certain manner, the CBO. But we said no, those are good policies. Those policies should stay in place.
The last — the other difference, which is between $1.8 and $1.9 trillion over the life of the program, deals with how the Treasury scores, believe it or not, the Obamacare repeal portion of the tax bill, and not taxes itself. But I’ll let Treasury fill that more in later on tonight.
In the back, please.
Q You talk about —
DIRECTOR MULVANEY: No, you can wait, please. You’ve always yelled out when everybody else raises their hands. So you can wait to —
Q I am raising my hand.
Q I want to go back to what you’ve talked about with interest rates and inflation, about both possibly moving lower. Where it seems to be — you know, a lot of the market turmoil we had last week, there was concern about both moving higher — interest rates and inflation. So I’m wondering how worried you are about the bond market at some point kind of forcing your hand on this and forcing spending cuts, and not being able to go through with some of the spending plans that you have.
DIRECTOR MULVANEY: Yeah, well, the traditional — the orthodox answer to that, from a macroeconomic position, would be, yeah, we’re supposed to be concerned about that. Right? Every time we’re going to — you see GDP go up or borrowing go up, you should see interest rates go up.
The fact of the matter, though, is, aside from the little spike that we’ve had in the last 10 days, we’ve not seen that for a long time. In fact, if you follow some of the economic literature, you’ll see that one of the great topics of debate amongst macroeconomists the world around right now is, “Where has inflation been?” We’ve had some growth all over the place, and we’ve just not seen that inflation.
I could opine as to where that might be. I mean, maybe the labor markets are a lot slacker than the numbers would indicate. Maybe the labor force participation rate can come up a good bit without creating inflation. Maybe it’s a supply-side type of inflation that doesn’t lead to the same type of inflationary —
Q But you’re making assumptions in this that —
DIRECTORY MULVANEY: Well, yeah. You have to but — look, let’s be perfectly clear. We have to make assumptions. There’s no question. All we’ve done is we’ve made assumptions that we think are defensible, just as they were last year, and we’ve adjusted them in order to account for an additional year’s worth of data. So we absolutely stand by the economic assumptions.
Q Yes, so you said that, in 10 years, the budget doesn’t balance. But do you see it balancing ever again?
DIRECTOR MULVANEY: We stopped at 10 years. And that was a philosophical conversation we had because, if I could come in here today and say, well, it doesn’t balance in 10 years, but it balances in 17, or 27, or 37, I think that might undermine the credibility of the numbers. And our goal here was to give the American people and to give Congress real numbers. And so that’s why we stopped at 10 years.
Do you have a follow-up on that or no?
Q Yeah, one additional question. You mentioned that the amount — the $18 billion put aside for border wall —
DIRECTOR MULVANEY: Yeah.
Q — is based on a DACA deal. What if there isn’t a DACA deal? Does that mean no border wall money?
DIRECTOR MULVANEY: Then Congress will never give us the money.
Q So no border wall money unless there’s a DACA deal?
DIRECTOR MULVANEY: Well, no, no, no. There’s two different pieces. Thank you for that clarification.
No, what’s hardwired into the appropriations process is $1.6 billion for ’18, and I think $3 billion —
STAFF MEMBER: $1.6 billion again.
DIRECTOR MULVANEY: $1.6 billion, again, for ’19. Okay? And then goes back — that’s been — that $1.6 [billion] for ’19 has been in there since last year. And that’s what we want for the border wall, regardless of DACA.
Now, the President has already said if we have a comprehensive immigration deal, if we have a DACA deal, part of that deal must be fully securing the southern border. And that’s where that $18 to $25 billion comes into play.
Q But the $25 [billion] is what has been — what they’ve said they want.
DIRECTOR MULVANEY: Yeah, but I think if you look — and again, that number has changed a couple of different times — but I think the $25 [billion] is all border security, including a wall. I think the bricks-and-mortar component of that is about $18 [billion].
Q Two questions. A technical one and a philosophical one. First, on Medicaid and Medicare, you talked about savings through — and there seems to be a lot of payment savings in there — can you tell us what the total savings number would be? Is it that $236 [billion]? Is it a larger number?
And second, when the administration chooses to not fully spend all of the money that has been allowed for in the caps, are you sending a message, particularly to conservative members of the House, that they shouldn’t support spending bills that spend all of that money, and, therefore, making it harder to continue with a regular order appropriations, of which Congress hasn’t been able to do for nearly a decade.
DIRECTOR MULVANEY: Okay, let me answer the first one first because I think that’s the shorter one. The answer is $236 billion. I’ve heard a number today on the media about half a billion or something like that, and that’s just not right. It’s $236 billion. The other stuff is stuff where we simply moved spending out of the Medicare trust fund and fund it someplace else.
The two biggest examples there are — believe it or — and I didn’t know this until this year. I don’t know if you folks know this or not. Do you know that your Medicare — when you pay your FICA every single month, some of that money goes to pay graduate medical school tuition? I had no idea that was the case. Okay? And we stopped that, and used other monies to pay for that. That’s part of that 500.
Another thing that your Medicare money goes to pay for every single year is bad debts incurred by hospitals from non-Medicare patients. So if I go into a hospital and I get treatment — I’m not on Medicare — and I don’t pay my bill, Medicare will pay some of that cost to that hospital.
We didn’t think that was right. We thought that was contributing to the early decline of the Medicare trust fund. So we changed those programs. We fund them out of the base, okay? So the real number of the reduced spending in Medicare is $236 billion. Did I get that right? Good.
Now, keep in mind, we manage, as part of these fairly modest changes — in fact — oh, by the way, can I — yeah, go ahead. Can you go to the next slide real quick? Okay. This is what we just talked about. Okay? These are the ones we talk about — the spending removed from trust funds and some other stuff. And this is our Medicare-specific proposal. That’s the $236 [billion] I talked about. Okay?
With this modest reforms, within — we can produce this. So you guys don’t have to worry about taking pictures if you don’t want to.
DIRECTOR MULVANEY: But with these modest reforms, we believe that we extend the viability of the Medicare trust fund by eight years. Okay? That’s how — not easy it is to fix, but that’s how critical it is to fix these things. If you can go back now, because I’ll move on to the next topic. If you go back to the previous slide. Thank you.
Now, are we sending the message not to vote? No. The message is very clear. Okay? Keep in mind, the two numbers between ’18 and ’19 are almost exactly the same. The difference in the caps are $10 billion. Okay? So the message is really simple: You don’t have to spend it, and if something happens between now and the appropriations bills — and face it, we’re all kidding ourselves. There are not going to be any appropriations bills passed out of Congress. They’re going to do another omni, right?
But if something happens between now and the next omni or the next CR, and they say, wait a second, maybe we are concerned about the deficit — maybe we don’t want to spend all this money — they have something on the shelf they can go look at and say, look, this is what we could do.
However if they decide they do want to spend — and that’s our ’19 budget — if they want to spend all of it, and they want to know what administration’s priorities are in spending all of that, they’ve got our ’18 budget to look at.
Q As a one-time deficit hawk, just simply —
DIRECTOR MULVANEY: No, still-time deficit hawk. Thank you.
Q Okay, well, that, I think, adds even more to question. How can you say that this is not hypocritical?
DIRECTOR MULVANEY: Did I tell you the story about NIH? I mean, who spends money? You know the question. Who spends — who appropriates money? I set up a budget — you know, what’s the answer? Who appropriates money?
Q The Congress.
DIRECTOR MULVANEY: That’s exactly right. And I’m sorry, you sit in Acosta’s seat, so I had to ask you the Acosta question. You know, we sent up $54 billion worth of reductions last year; they took $5 [billion], and pounded the hell out of me while they were doing it, right? So I mean, I know what the attitude is on the Hill. And that’s why we wanted to send both of these budgets. We’d love to see them spend less. Okay?
The President himself tweeted this weekend that we had to accept a bunch of additional non-defense discretionary spending in order to get the defense spending we wanted. He said we had to accept a bunch of waste in extra spending in order to get that. That’s not ideal. If you left it to the President of the United States, he’d fund defense. If it were up to the President of the United States, we’d do what we just talked about in 2019 budget.
So, no. I think that was one of the things that really surprised him during the caps discussion, which is that the Democrats would look him in the eye and say, “We want to fund defense too.” And every time he said, “I’d like a dollar for defense,” they said, “Well, we can only give you that if you give us a dollar over here.” And I think that really surprised him.
So, no, it’s not hypocritical. It’s simply adjusting to the Washington, D.C. that we live in, and a Washington, D.C. where we have to have Democrat votes to support any spending bill at all. Because every spending bill takes 60 votes.
Does that answer your question?
Q So a Democratic administration — let’s say there is one in 4 years, 8 years, 12 years, whatever.
DIRECTOR MULVANEY: Right.
Q Will you be a deficit hawk then?
DIRECTOR MULVANEY: I will always be a deficit hawk. I am today, I was yesterday, and will be tomorrow because I do think that spending a bunch of money that we don’t have is wrong. I’m just telling you that this is the cards that we’ve been dealt as an administration. This is how we would prefer to spend the money if it’s going to get spent. We just don’t think you have to spend all of it.
Q Can I follow up quickly on that? And then I have another one. Because the underlying budget, without taking into account the caps agreement —
DIRECTOR MULVANEY: Yes.
Q — also doesn’t balance in 10 years, right? You never eliminate deficits in the 10-year window. So is the President just now resigned to the fact that because he has to work with Congress on the budget that it never can be balanced?
DIRECTOR MULVANEY: Well, keep in mind — well, that goes back to what I talked about the end — during the budget last year, which is — I think what I said is that we don’t start moving the needle really, really quickly, the window is going to close on being able to balance within 10 years. And if we didn’t start moving the —
Q So the window is already closed?
DIRECTOR MULVANEY: Yeah. Yes, it is. I think I said last year that I expected last year’s budget — I think I stood here at this podium and said, “I think this will probably be the last budget we can balance within the 10-year window, unless there’s dramatic changes.” And there weren’t any dramatic changes.
We knew last year that we’d be facing this, and that’s — again, that’s just the reality of the situation.
Q Quick follow-up on entitlement cuts.
DIRECTOR MULVANEY: Yeah.
Q You talked about Medicare. There’s also, I believe — I think more than a trillion in Medicaid spending cuts, or you were moving money around that goes to Medicaid into grant programs that are discretionary.
DIRECTOR MULVANEY: Yeah.
Q Can you talk about the other entitlements that are affected in that $1.7 trillion?
DIRECTOR MULVANEY: Well, I don’t about — where’s the $1.7 trillion coming from?
Q That’s the overall cuts you’re looking for in mandatory spending.
DIRECTOR MULVANEY: Oh, oh. I’m sorry. Yeah, okay. Thanks very much. And I don’t know the allocation of that that’s part of Medicaid. Because keep in mind, when you talk about mandatory spending, most people think that it’s Medicare and Medicaid and Social Security, but it’s actually a lot more than just that. So it wouldn’t be fair to say, okay, if you have $1.7 trillion in mandatory savings, and you’ve only got $236 billion in Medicare, then all the rest comes from Medicaid. That’s not accurate.
So I don’t know what the number is in Medicaid. But I will tell you this about our Medicaid which is, the biggest assumptions that we made — proposals that we make — is to go ahead and pass Graham-Cassidy — the Obamacare repeal and replace bill which transitions Medicaid to a block-grant system to the states. Under the proposal, the block grants to the states would actually go up every single year. Every single year? Or every single year except one? Every single year, Grogan? Our block grants to the states, or is that one year where we have that sort of dip?
STAFF MEMBER: Every year.
Q At what rate?
DIRECTOR MULVANEY: I don’t remember what the — oh, the rate is slower than — that’s the other change. So we assume Graham-Cassidy for Medicaid, but we grow it at the CPI — CPI medical or CPI —
STAFF MEMBER: CPI-U.
DIRECTOR MULVANEY: — CPI-U instead of CPI medical because our data is that the historical, actual growth rates of Medicaid costs has been CPI-U and not CPI Medicaid.
So what we’re saying is we think that that program has been growing faster than it needs to in order to provide the same level of services. So those are our two biggest changes to Medicaid.
Q Yes. I want to go to, really fast, Pell Grant and SNAP. I want to get into the weeds about the SNAP issue, what you said about Blue Apron. Is this an effort to help —
DIRECTOR MULVANEY: And we call it a food box. Blue Apron is a private business, so I want to make clear: We are not hiring Blue Apron to do this. It’s a food box program, but people know what Blue Apron is.
Q And I want to get into weeds about that. What is going to be in that box? Is it going to be like fresh vegetables? Because, I mean, if you follow the example of some of these boxed food commercial programs, they’re having some issues, I guess. And will you be utilizing the U.S. Postal Service with this? Is this an effort to help bolster the Postal Service as well?
DIRECTOR MULVANEY: Yeah, I don’t know about the Postal Service question.
STAFF MEMBER: It’s — the states will be able to —
DIRECTOR MULVANEY: Okay, it goes to the individual state.
As to the actual food box program, I think we’re using the current program for seniors as a model, but we’re getting rid of — by the way, in the budget, you will see that we’re getting rid of the current food box program for seniors. Been doing it for a long time, right? And that’s not because we’re not going to feed the seniors food. All we’re doing is folding those folks into the food box program. So we’re going from a food stamp — a SNAP program and a food box for seniors, and we’re putting everybody together in one program. So when you see that, please get clarifications.
But what I’ve been told from USDA, it’s 100 percent domestically grown food. And it has been pitched as being more nutritious than what may otherwise be.
Last question. Yeah, follow-up. Yes, ma’am.
Q Yeah, Pell Grants. What is the plus again, and why that number? Why did you plus it up to that number? That was one of your first things that you did on the first one — the first chart.
DIRECTOR MULVANEY: I can’t remember what the plus-up is on Pell Grant, but I do know that the big substantive change is we expanded Pell Grant to go to the short-term program so they can used for vocational training and stuff. Is that what it was?
STAFF MEMBER: The number you had was a rescission that we had taken. We are (inaudible) Pell as a short-term programs.
DIRECTOR MULVANEY: Okay. So we’re expanding — the number you saw on the screen was a rescission. That’s one of those smoke and mirrors things, okay. But the expansion to the program — yeah, rescissions and CHIMPs and carry-forward balances, I’ve learned a lot more about these than I ever care to think about.
But the expansion to the Pell program is to the short-term program. So that would qualify folks for vocational training, which a lot of times don’t qualify for Pell.
Q So it’s summer, winter — it’s all-year round, now, vocations schools.
DIRECTOR MULVANEY: Yeah, well I think we did all year last.
Q Yeah, it’s all year now, and you’re adding vocational.
DIRECTOR MULVANEY: We did year-round last year, and now we’re adding a short-term.
Q Thank you. The defense budget.
DIRECTOR MULVANEY: Yeah.
Q This morning, the President said, we’re going to be so far ahead of everyone else in nuclear. How much of this budget addresses that statement today in addressing the nuclear arsenal and the increase? And do you have specific numbers as to how much it’s going to increase, how many weapons that translates to?
STAFF MEMBER: Within NSA, it’s an $11 billion budget. That does not include the platforms themselves, which are about another $24 billion — about $35 [billion]. We’ll get you exact numbers.
Q Thanks. And then the follow up to that question is, what’s the impetus for this? What’s the philosophy behind it? Does this administration believe that we can win a nuclear war?
DIRECTOR MULVANEY: No, I think the President has been very clear that he expects to have the very best weapons available. And that the nuclear arsenal has not been updated for a long time, and that he wants to do that. It was a priority in last year’s budget. This is not news. This is —
Q I’m just trying — I’m trying to understand. Please help me. Because we have — I mean, it was Carl Sagan who said, our nuclear deterrent policy is like two kids sitting in a room full of gasoline arguing over how many matches we have. I mean, we can blow up the world plenty. Why aren’t we leading the world in —
DIRECTOR MULVANEY: Well, I think you heard the President say today that he’d love not to have these. But we have them because other folks have them.
Q But we’re not leading the way.
DIRECTORY MULVANEY: Okay. I am not going to take any questions because, honestly, I’m just whipped. I’ve been doing this for four days. But John Czwartacki is here. We’ll be happy to take all of your individual questions, follow up over the course of the next couple of days. And we will be on the Hill the next few days.
Thanks, you all.
5:09 P.M. EST