New OMB Chief Tackles Rubik's Cube of Federal Budget

The dyspeptic Henry Adams was not nice but not wrong when he described what now is named the Eisenhower Executive Office Building, adjacent to the White House, as an “architectural infant asylum.” The granite pile, which once housed the State, War and Navy departments, was, Harry Truman said, “the greatest monstrosity in America.” Actually, today’s premier monstrosity is the federal budget, which is Mick Mulvaney’s headache as the new head of the Office of Management and Budget, which is housed in the EEOB.

If the dictionary had an entry for “deficit hawk,” it would have Mulvaney’s picture next to it: In 2011, he opposed raising the debt ceiling unless it was linked to deep spending cuts and a constitutional amendment requiring a balanced budget. Now 49, he became a South Carolina congressman by defeating a 14-term Democrat who was chairman of the House Budget Committee. Mulvaney was about to begin his fourth term when the new president nominated him to be budget director. This detonated Sen. John McCain, who voted against Mulvaney, whose fiscal stringency extends to defense spending.

Mulvaney represented upstate South Carolina, where Andrew Jackson might or might not have been born (southern North Carolina also claims him) and where Jackson’s military spirit still lives. Mulvaney and McCain both oppose the budget slush fund used to evade spending caps by paying for some military operations outside the regular defense budget, as Overseas Contingency Operations. McCain has derided OCO as a “gimmick.” In 2016, it was 10 percent of defense spending; bringing those operations into regular budgeting will further complicate Mulvaney’s task of solving this budgetary Rubik’s cube: How to accommodate preserving the sequester’s spending caps, cutting tax revenues by upward of $6 trillion over a decade, reforming the tax code, substantially increasing defense spending, finding $1 trillion for infrastructure projects and leaving untouched entitlements while every day 10,000 more baby boomers become eligible for Social Security and Medicare. Today AARP is running television ads urging support for the new president’s promise to “protect and save” both programs. While Mulvaney stresses the guarantee that no one in or near retirement will ever be affected by entitlement reforms, he also insists that there must be changes if the two programs are to be protected and saved.

It is an old joke: Two people, an economist and a normal person, fall into a deep pit with steep, unscalable sides. “Don’t worry,” says the economist, “we’ll just assume a ladder.” It is an old budgeting practice: Assume rapid economic growth. What OMB decides to assume will depend, Mulvaney says, on finding “the sweet spot” among various public- and private-sector growth projections.

Although since 2000 average GDP growth has been an anemic 1.9 percent, and America just completed a decade without a single year of 3 percent growth, Steven Mnuchin, the new treasury secretary, has signaled what the administration will assume: He believes 3 percent growth can be normal. Never mind that growth was 1.8 percent last year, and the Federal Reserve sees 1.8 percent for many years, and the Congressional Budget Office projects 1.9 percent for five years.

Mulvaney notes that someone 35 years old has spent his or her entire working life experiencing nothing but economic sluggishness. The political rewards for delivering the novelty of economic dynamism could be transformative. He insists that “1.9 percent is not the ‘new normal’” and “230 years of American history are more indicative of what America is capable of.” Whatever his shop proposes will reflect “dynamic scoring,” which estimates the growth effects of tax reform and, even more, regulatory relief, which he thinks can have “two to three times” the growth effect of tax policy.

The list of prior budget directors includes many luminous names: George Shultz, Caspar Weinberger, Leon Panetta, Alice Rivlin, Mitch Daniels, Rob Portman. None faced a challenge as daunting as Mulvaney’s, with much depending on tax reform at a moment when Republicans are sharply divided about various proposals.

Confirmed later than any of his predecessors, Mulvaney is just getting organized in his ornate 19th-century office. The French writer Guy de Maupassant so loathed the Eiffel Tower that he frequently lunched in its restaurant because there he could not see the tower. As Mulvaney struggles to reconcile Americans’ appetite for government services and their aversion to paying for them, one consolation is that he cannot see the EEOB from his office in it.

The Patriot Post® · New OMB Chief Tackles Rubik's Cube of Federal Budget