We’ve already discussed the absolutely savage cuts in the budget the resulted from populism beating neoliberalism. In addition to a thorough analysis of those, Dylan Mathews observes that there’s also the classic GOP crackpot magical thinking:
In the budget, Trump assumes that real GDP growth will reach 3 percent by 2020 and then stay there. In a press call, OMB Director Mulvaney castigated the Obama administration and the Congressional Budget Office for projecting 1.9 percent growth for the indefinite future.
“I think it’s sad that the previous administration was willing to admit they couldn’t get more than 1.9 percent,” Mulvaney told reporters. “I think it’s sad that the CBO assumes the same thing. That assumes a pessimism about America and its people and its country.”
What it actually assumes is that the US is an aging country, that we will not have enough immigrants to keep pace with older Americans leaving the workforce, and that there is a global slowdown in productivity across all rich countries. If the Trump administration were open to increasing immigration flows, that would be one thing. But their immigration crackdown actually makes this problem worse. As former Obama chief economist Jason Furman noted in a piece for Vox, the median estimate from both the CBO and the Fed’s Open Market Committee is 1.8 percent; private forecasters are a bit more optimistic at 2.2 percent. No one thinks 3 percent is plausible, and there’s no tax reform in the world so awesome as to close that gap.
Higher growth leads to higher tax receipts, which helps the Trump administration claim that their budget balances. In a memorandum, they estimate deficits under their budget assuming that growth continues at its current level rather than rocketing up to 3 percent. They find that in 2027, the deficit would reach $1.34 trillion. With their optimistic economic assumptions, they found that there would be a surplus. So Trump’s team is getting well over $1 trillion per year in new money to play with by making up overly optimistic growth numbers.
It gets worse, though. They’re double-counting those numbers. Treasury Secretary Steve Mnuchin has said that the tax reform plan the administration is pushing will be “deficit-neutral” only after you take into account their effect on economic growth. So he’s effectively using that growth to pay for tax cuts. But as the Washington Center for Equitable Growth’s Greg Leiserson notes, he then turns around and uses the growth to also pay for deficit reduction in the budget.
This is an area, of course, where Trump is no more of a bullshitter than the average Republican. Jeb! promised 4% growth — WHY DOES TRUMP LACK CONFIDENCE IN THE AMERICAN PEOPLE?!?!?!?!?!?!?!?!? The whole party is just a racket justifying the most upward redistribution of wealth that can pass Congress, justified with asinine back-of-a-cocktail-napkin crap.