Tax cut won’t power growth as predicted

WASHINGTON >> The Trump administration pushed a $1.5 trillion tax cut through Congress in 2017 on the promise that it would spark sustained economic growth. While the tax cuts have goosed the economy in the short term, officials now concede they will not be enough to keep the economic engine revving over the long term.

To produce the 3 percent average annual growth that President Donald Trump and his advisers routinely predict for the next decade, White House forecasters say the U.S. economy would need additional rollbacks in labor regulations, a $1 trillion infrastructure plan and another round of tax cuts.

Getting all those policies implemented would be highly unlikely, given a divided Congress and a ballooning federal deficit, which could limit lawmakers’ appetite to spend money on a new tax cut or infrastructure plan.

But without those additional steps, the president’s economic team predicts in a report released Tuesday that growth would slow to about 2 percent a year in 2026. That is the year when many of the individual tax cuts included in the 2017 law are set to expire, essentially producing a tax increase for millions of Americans.

Most forecasters project economic growth of about 2 percent in the medium and long run for the United States, but that rate would fall far short of the heady promises that Trump has made about his ability to fuel the U.S. economy. Trump has predicted growth of as much as 5 percent, while his advisers have routinely promoted 3 percent as the new normal. Growth averaged just over 2 percent from 2010, the first full year after the Great Recession ended, through 2016, when Trump was elected to the White House.

Even if all the new measures were adopted, growth would slow over time, but it would still stand at 2.8 percent at the end of the decade, the White House forecasters say.

Trump’s Council of Economic Advisers outlined the projections Tuesday in the annual “Economic Report of the President.” As is customary for all administrations, Trump’s advisers built their forecasts around the presumption that all of Trump’s policy proposals would be enacted in the years to come.

Those include making permanent the individual tax cuts from 2017 and the infrastructure package that Trump occasionally mentions in speeches, but that has never gained serious consideration in Congress.

Today, the Fed will release its new economic projections. Many analysts expect it will show a slight softening in growth as a result of a prolonged trade war and economic slowdown overseas.