President Donald Trump’s forecasts for the U.S. economy over the next decade are far more optimistic than the predictions of private-sector and government economists.
The White House released a budget proposal Tuesday proposing a $3.6 trillion spending cut to the American welfare state over the next 10 years. The administration expects the proposal to balance the federal budget within the next decade and bring about his administration’s goal of 3 percent economic growth. (RELATED: Trump Proposes $3.6 Trillion Cut To U.S. Welfare State)
Reaching 3 percent growth, sustained or otherwise, is no small achievement, considering the U.S. economy grew at a steady 2 percent rate over the past decade. The White House projects that, in conjunction with its tax plan, the budget proposal will bring $2.1 trillion in federal revenue.
“Combined with often imprudent regulations crafted in the midst of crisis, the engine of American prosperity has slowed. I believe that a goal of 3% GDP or higher economic growth is achievable if we make historic reforms to both taxes and regulation,” Treasury Secretary Steve Mnuchin said before the Senate Banking Committee in mid-May.
The Trump administration’s projections over the 10-year horizon are raising some eyebrows from academics and government economists.
The Congressional Budget Office (CBO) expects that the economy will grow at “1.9 percent per year, on average, over the next 30 years,” a rate more than 1 percent lower than the White House predicts. The agency predicts a slower labor participation growth rate and a decline in the productivity of labor.
One important thing to note is that the CBO’s projections for growth expect that “current laws governing taxes and spending,” remain “generally the same.” If Trump and Republican leadership in Congress are able to pass comprehensive tax reform, cut federal spending, or both, the CBO would have to revise its estimates.
The Committee for a Responsible Federal Budget finds that the administration’s goal of 3 percent growth will be “very difficult to achieve” and that the “president’s proposals would not meet his fiscal goal in reality.”
For the U.S. to achieve a sustained level of 3 percent growth, the nation would have to perform better than it did in the 1990s — one of the most productive periods in the history of the U.S. economy. Even if the economy had a strengthening labor force, steady growth in capital accumulation and faster labor productivity, the U.S. wouldn’t likely hit 3 percent growth, according to the Committee for a Responsible Federal Budget.
Some economists are calling out the administration for what appears to be rather dubious accounting. Trump’s budget reportedly double counts some of the benefits of faster economic growth, like the effects of lower tax rates on federal revenue, The Wall Street Journal reports.
The CBO and private economists predictions for both former Presidents George W. Bush and Barack Obama did not live up to realities.
Economists expected the economy to sustain a growth rate over 3 percent for the entirety of Bush’s presidency. The 9/11 attacks on the World Trade Center, two wars in Iraq and Afghanistan and the onset of the Great Recession greatly altered those predictions, dropping the growth rate to a near negative 3 percent rate in 2008.
Obama’s administration expected the economy to reach a robust 4 percent growth rate within his first term in the White House, with the CBO not far behind the administration’s predictions. The economy never reached above a 2 percent growth rate during Obama’s two-terms in office.
Congress will not be able to use the Trump administration’s proposal when they begin conjuring up their own budget plans in June. If the economy isn’t able to hit 3 percent growth and employment remains stagnant, some economists warn that federal deficits could top $3 trillion over the next decade.
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