Trump seeks to slash $3.6 trillion of spending in austere budget

By Roberta Rampton

WASHINGTON (Reuters) - U.S. President Donald Trump asked lawmakers on Tuesday to cut $3.6 trillion in government spending over the next decade, taking aim at healthcare and food assistance programs for the poor in an austere budget that also boosts the military.

Republicans who control the U.S. Congress - and the federal purse strings - will decide whether to make politically sensitive cuts, and the proposal is unlikely to be approved in its current form.

Although it is not expected to survive on Capitol Hill, the proposal puts numbers on Trump's vision of a government that radically cuts assistance to lower-income Americans.

The biggest savings would come from cuts to the Medicaid healthcare program for the poor, which are embedded in a Republican healthcare bill passed by the House of Representatives.

Trump wants lawmakers to cut at least $610 billion from Medicaid and more than $192 billion from food stamps over a decade. He seeks to balance the budget within 10 years.

The Committee for a Responsible Federal Budget, a nonpartisan policy organization, said the plan relied on gimmicks, unrealistic cuts and "rosy assumptions" of economic growth that would reach 3 percent annually by the end of Trump's first term.

The Congressional Budget Office projects the economy to grow at an annual pace of 1.9 percent over that period.

The White House said its proposed tax cuts would help fuel higher growth and pay for themselves by generating an additional $2 trillion in revenue over 10 years.

Lawrence Summers, a former economic adviser to Democratic President Barack Obama, said the Trump administration was double-counting that money by saying it would help close budget deficits while also offsetting the revenue lost by cutting tax rates.

"It appears to be the most egregious accounting error in a presidential budget in the nearly 40 years I have been tracking them," Summers wrote in the Washington Post.

Mick Mulvaney, Trump's budget office director, said his office made other assumptions that were probably too conservative. "We stand by the numbers," he said.

Federal aid to states would shrink by 3 percent, though the cuts would fall most heavily on states that backed Trump's Democratic rival Hillary Clinton in the 2016 election. States that voted for Clinton would collectively face a drop of 4.8 percent, while those that backed Trump would see assistance cut by 1.2 percent. (Graphic: http://tmsnrt.rs/2qhwnLV)

There is some new spending in Trump's plan for fiscal year 2018, which starts in October.

The Pentagon would get a spending hike, and there would be a $1.6 billion down payment to begin building a wall along the border with Mexico, which was a central promise of Trump's presidential campaign.

Trump's proposal foresees selling half of the U.S. emergency oil stockpile, created in 1975 after the Arab oil embargo caused fears of price spikes. The announcement surprised oil markets and briefly pulled down U.S. crude prices.

Republicans are under pressure to deliver on promised tax cuts, the cornerstone of the Trump administration's economic agenda.

But the effort has stalled as the White House grapples with the political fallout from allegations of Russian meddling in the 2016 U.S. election.

Mulvaney said the plan is the first one in a long time to pay attention to taxpayers.

"You have to have compassion for folks who are receiving the federal funds, but also you have to have compassion for the folks who are paying it," he told reporters.

Republican leaders in the House said lawmakers would be able to find common ground with the budget plan.

REPUBLICAN VOTERS

Senator Bernie Sanders, who ran a populist campaign during the Democratic presidential primary, said the budget showed that Trump's campaign promises to stand up for working people was "just cheap and dishonest campaign rhetoric that was meant to get votes," Sanders told a news conference.

While the plan boosts defense spending by $54 billion, it falls short of campaign promises for a "historic" hike in military spending amid plans to rebuild the U.S. Navy.

That is only 3 percent more than former President Barack Obama had sought in his long-term budget plan.

The president would reduce nearly a third of funding for diplomacy and foreign aid including global health and food aid, peacekeeping and other forms of non-military foreign involvement.

"If we implemented this budget, you'd have to retreat from the world or put a lot of people at risk," said Republican Senator Lindsey Graham. "This budget is not going to go anywhere."

Trump upheld his promise - for the most part - that he would not cut Medicare and Social Security, two expensive safety-net programs that deficit hawks have long targeted for reforms.

Those programs may not come out of Capitol Hill unscathed, however. House Majority Leader Kevin McCarthy, a fellow Republican, said lawmakers would have to reform both programs to save them.

The White House proposed changes that would require more childless people receiving help from the Supplemental Nutrition Assistance Program, better known as food stamps, to work.

Most government departments would see steep cuts, particularly the State Department and the Environmental Protection Agency.

Treasury Secretary Steven Mnuchin said the budget plan will boost economic growth by fostering capital investment and creating jobs for workers who gave up their job hunts during tough times.

(To view a graphic on 'Trump's budget by state' click http://fingfx.thomsonreuters.com/gfx/rngs/USA-TRUMP-PAIN/0100419K2RR/index.html)

(Additional reporting by Susan Heavey, Yasmeen Abutaleb, Amanda Becker, Timothy Gardner, Ginger Gibson, Andy Sullivan and Mike Stone in Washington and PJ Huffstutter in Chicago; Writing by Andy Sullivan and Alistair Bell; Editing by Andrea Ricci and Cynthia Osterman)