Mnuchin Deflects Blame for Deficit, Citing Demands by Democrats

(Bloomberg) -- The U.S. budget deal that Republicans brokered to beef up the military is a factor in the widening fiscal deficit, but Democrats share the blame for a shortfall that’s approaching $1 trillion because of their own requests for spending, Treasury Secretary Steven Mnuchin said.

“In an effort to get the military spending -- which the president thought was critical and which I fully support -- given the issues we have all over the world and the under-investment we have had in the last eight years, this required bipartisan support and the Democrats required big increases in non-military spending,” Mnuchin said in a roundtable interview Tuesday at Bloomberg’s Washington office. “So that’s a major component of deficit today.”

Mnuchin noted that any spending bill needs 60 votes in the Senate, which means the majority Republican party must agree to some Democratic priorities to garner enough support.

Mnuchin’s remarks follow a Treasury Department report last week that showed the deficit was the largest on record for the month of November as the government spent twice as much as it collected. The U.S. budget gap hit a six-year high of about $780 billion in fiscal 2018 and is on track to exceed $1 trillion by 2020, according to the non-partisan Congressional Budget Office.

Congressional leaders reached a two-year budget agreement in February that would boost federal spending by $300 billion, raising caps on defense funding and some domestic government priorities. It came a month after President Donald Trump signed into law a tax overhaul that is expected to reduce federal revenue by almost $1.5 trillion over a decade.

Budget Cuts

Budget director Mick Mulvaney, the incoming White House chief of staff, is leading a process to look for “significant savings” and Trump has asked his Cabinet secretaries to cut 5 percent from their budgets, though not every department is expected to see that steep of a reduction, said Mnuchin.

“It’s definitely something that the president is focused on,” Mnuchin said.

Budget hawks have raised concerns that a rising national debt burden -- which has almost doubled to about $22 trillion since the end of the financial crisis -- could create a drag on the economy. U.S. director of national intelligence, Dan Coats, has said that America’s growing debt pile represents “a dire threat to our economic and national security.”

The Trump administration has argued the tax cuts will give a lift to economic growth, bringing in more revenue. But the stimulus effects from the tax reductions enacted in January are expected to start fading, with the International Monetary Fund forecasting U.S. economic growth easing to 2.5 percent next year, from 2.9 percent in 2018.

“The evidence on the tax cut is that it didn’t lead to the sustained long-run improvement in potential output that is what we need to have higher standards of living in the future,” said Paul Romer, the former World Bank chief economist and winner of the 2018 Nobel prize in economics, told Bloomberg Television on Monday.

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