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How Trump’s proposed 2020 budget hinges on significant economic growth

The White House has released President Trump’s proposed 2020 budget. The record $4.7 trillion plan calls for increased military spending and $8.6 billion for Trump’s controversial border wall, along with significant cuts to domestic programs. Judy Woodruff talks to the president’s chief economic adviser, Larry Kudlow, about his priorities and why “growth solves a lot of problems” for the economy.

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  • Judy Woodruff:

    The White House today released President Trump's budget for 2020. The record $4.7 trillion plan calls for increased military spending and large cuts to domestic programs. It also includes an additional $8.6 billion for the president's controversial border wall.

    We turn now to the president's chief economic adviser, Larry Kudlow.

    Larry Kudlow, welcome to the "NewsHour." It's good to see you.

  • Larry Kudlow:

    Thank you, Judy.

  • Judy Woodruff:

    So, the president is asking Congress to approve the largest budget ever, as we said, $4.7 trillion. Doesn't achieve balance for another 15 or so years. Trillion-dollar deficits for the rest of his term, and yet he ran promising to get rid of the deficits. He's going in the opposite direction.

  • Larry Kudlow:

    Well, I think, actually, if you look at those numbers as a share of GDP, which is the real burden, spending and borrowing comes down every year, I guess deficits from a peak of about 5 percent this year, and then it will go down a steady glide path in the out years.

    And then I think the key points are very simple. Number one, this is an economic growth budget. We maintain our tax rate reduction, our rollback of regulations and red tape, our opening of energy and our trade reforms.

    The growth in 2018 came in at 3.1 percent. That was our view. We think there's more 3 percenters out there. That's probably the best way to get the budget gap down. And, of course, we have to limit spending. And the president is going to be tough on domestic programs, roughly about a 5 percent reduction, at least for this year.

  • Judy Woodruff:

    And I want to ask you about the spending cuts in just a minute.

    But you mentioned growth, 3 percent, the administration's projecting. But, as you know, some very respected independent folks, the Federal Reserve, is projecting 2 percent, but sliding downward. The Congressional Budget Office is projecting under 2 percent. You have got the Center for a Responsible Federal Budget, they are saying your growth projections are unrealistic — quote — "based on accounting gimmicks and fantasy assumptions."

  • Larry Kudlow:


  • Judy Woodruff:

    So, how do you prove them all wrong?

  • Larry Kudlow:

    Well, we will just see. The proof of that pudding will be in the eating.

    Everybody disagreed with us in 2018, said we couldn't get 3 percent economic growth after the tax cuts were passed. And we did. And, again, the view here is, we are promoting incentives in the economy. We have had tremendous increases in business investment.

    We have also had 100 percent expensing for new equipment. That has spurred business investment. There's money coming in offshore. We're the hottest economy in the world. The president's trade policies, I think, are contributing to confidence. We are on the verge of what I hope will be a historic deal with China. Perhaps we will talk about that.

    In other words, people have doubted our supply-side tax cuts. So far, we won round one. I'm going roll the dice again, and I'm going to take the over and suggest that we will be right again this year, and many of our critics will not be.

  • Judy Woodruff:

    Well, you are hanging a lot of this on these tax cuts.

    But we now have a number of experts who are watching those tax receipt numbers that come in regularly. And they are saying that they do not add up to what is anything like the kind of growth that the administration had projected off these tax cuts?

  • Larry Kudlow:

    Well, actually, overall revenues are up about 10 percent. So that's a pretty good number.

    And let me say, one of the people that are skeptical of us, the Congressional Budget Office, nonetheless, their estimates before taxes and most recently after the taxes, they have argued, they have said, there's roughly $7 trillion of higher nominal GDP. And from that comes about $1.2 trillion in extra revenues, so that the tax cuts are about 80 percent paid for overall.

    That includes the individuals. The corporate tax cuts are completely paid for. So we're already seeing the results here. And, again, what matters, we have had record blue-collar employment, raises arising from the latest reports, 3.4 percent. The unemployment rate is all the way down to 3.8 percent, across the board, low unemployment.

    Women — I'm proud of this, actually.

  • Judy Woodruff:

    Let me…

  • Larry Kudlow:

    We have made efforts — 65-some-odd percent of the new jobs created in the last year have come from women. So I think we're striking everywhere and we are succeeding.

  • Judy Woodruff:

    Well, let me ask you.

    Obviously, there are other views, but let me come to this — the larger picture here on spending cuts, increasing spending in defense, cutting parts of the budget that are non-defense, so-called discretionary, much of it domestic.

    So, there's been a kind of a deal between the two political parties for the last decade or so in this very partisan era, that for every dollar of spending in one direction or another on defense, there would be an equal movement in non-defense.

    You have broken with that approach. You have got here a 5 percent increase in defense and a huge cut on the rest of the budget. How do you explain that?

  • Larry Kudlow:

    Well, I think it's a question of priorities.

    And I think we'd like to break this nexus where everybody gets more spending. On the military side, where we have added, we think we have got to have the greatest military in the world. We have to have the best technology regarding military. We have commitments overseas that we have to keep.

    And so we're honoring all those commitments. On the domestic side, I think spending has been too rapid. There are number of programs — and I can't go through every one of them, but there are number of programs that we think are not efficient and the country can do without.

    Some cases…

  • Judy Woodruff:

    Let me just be specific here. You're cutting the Environmental Protection 31 percent. You're cutting the Education budget by 10 percent. You're cutting elements of Medicaid, elements of welfare, raising work requirements.

    The question coming out of this is, are the American people going to be better off with this budget?

  • Larry Kudlow:

    Well, look, food stamps have come way down. I mean, we have lost five million people on food stamps. That's a terrific thing.

    Other poverty areas, homeless vets, for example, that number has dropped by 5 percent. We had added in our tax plan tremendous assistance to low-income workers, child credits, earned income tax credits. I mean, we think that the essential safety net is being preserved, and then some.

    But I want to say growth solves a lot of problems. So, more and more federal spending is not a recipe for growth, will not help the people that we — some people think it will. And so why should we continue to spend in an unlimited way?

  • Judy Woodruff:

    We're going to have another conversation about growth the next time — next time we have you on.

    But let me do finally ask you about the border wall. You're asking $8.6 billion. You only asked for $1.6 billion last year, when you had a Republican majority in the Congress. Even right — right now, with this Congress, Republicans are expressing doubts about that much money.

    Are you — is the president looking for another showdown with the Congress over this, I mean, looking for another government shutdown potentially?

  • Larry Kudlow:

    The president is essentially looking for border security. And that includes building a wall.

    And we have brought in all the experts from inside the government, Customs, ICE, DHS and so forth. And that's what we decided we needed.

    My view, it's absolutely essential that we have this border security because we have an economic crisis, a humanitarian crisis, illegals flooding over the border. This has to be stopped for the safety and security of the United States.

    So I think the president has made a very effective case. If there is going to be a battle with Congress, then so be it, but the experts that we have talked to believe that this is the exactly the right number.

  • Judy Woodruff:

    But so be it. You're saying, if that's what comes, the president's prepared for it?

  • Larry Kudlow:

    Well, I think you have to fight for your principles.

    And, again, I think border security on the southern border is essential. I think it's essential, frankly, to the longevity of the country. I think we're not going to have the prosperity and the law and order as long as we leave that problem unsolved.

    I understand there are disagreements. We would love to have a bipartisan agreement on this as time goes on. There's no question about that. There are other areas of bipartisanship that we may see.

    But border security is essential, and I think the president has made the case.

  • Judy Woodruff:

    And you know that it's the subject of an enormous debate.

    Larry Kudlow, thank you very much for being here.

  • Larry Kudlow:

    Thank you, Judy.

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