Trump’s budget disconnect: His GDP forecasts appear way too rosy

White House reveals Trump’s budget proposal

  • President Trump’s new budget plan assumes economic growth that few economists predict
  • Among those forecasting significantly lower growth ahead are federal economists
  • The proposed budget sees 3 percent-plus GDP growth for the entire period
  • Trump’s budget is a proposal, one Congress is unlikely to pass as delivered

President Donald Trump’s proposed $4.7 trillion budget is based on a forecast that the economy will grow by at least 3 percent a year through his presidency. Here’s a big problem with that: Many economists — including government forecasters — say GDP growth is likely to be far below that.

Mr. Trump’s budget forecasts GDP will grow 3.2 percent in 2019, 3.1 percent in 2020 and 3 percent for each year from 2021 through 2024. To put that in perspective, the U.S. hasn’t had a streak of GDP growth above 3 percent since the late 1990s, and the post-Great Recession years have been marked by annual growth of between 1.6 percent to 2.9 percent.

To be sure, Mr. Trump’s budget is a proposal and a wish list, with Bloomberg News reporting that Congress is likely to snub it. Yet it also shows a disconnect between the Trump administration’s outlook for the U.S. economy and widely held forecasts by leading economists, including the government’s own.

Economists are calling for far slower growth than the Trump budget’s rosy predictions. The Congressional Budget Office, for one, is forecasting GDP growth of 2.3 percent in 2019, falling to 1.7 percent in the following years through 2023. That’s in line with other economists such as Oxford Economics, which also pegs 2019 growth at 2.3 percent followed by several years of 1.8 percent growth.

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What’s the big deal if Mr. Trump’s forecast is a tad positive? The issue rests on the fact that the budget’s spending projections are partially based on tax collections, which increase when economic activity gets a boost. Each 0.1 percentage point increase in average economic growth juices forecast revenue by about $300 billion, according to the Center on Budget and Policy Priorities, a left-leaning think tank.

If economic growth fails to achieve Mr. Trump’s 3 percent-plus rate, the U.S. could end up with lower-than-expected tax revenue, potentially leading to even wider deficits. For fiscal 2019 starting Oct. 1, the total federal budget deficit is running 77 percent higher than it was for the same period a year ago.

The Treasury Department said last week that the deficit for the first four fiscal months totaled $310.3 billion,  up from $175.7 billion in the same period a year ago

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