Trump’s tax cut won’t power growth pre­dicted for econ­omy, of­fi­cials con­cede

The Buffalo News - - WASHINGTON NEWS - By Jim Tankersley

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 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 the 2017 and the in­fra­struc­ture pack­age that Trump oc­ca­sion­ally men­tions in speeches, but that has never gained se­ri­ous con­sid­er­a­tion in Con­gress.

They also in­clude steps to roll back reg­u­la­tions – many of which are at the state level and out of the con­trol of Con­gress – that the ad­min­is­tra­tion says serve as a bar­rier to more Amer­i­cans work­ing. It cites oc­cu­pa­tional li­cens­ing rules, which re­strict work­ers from en­ter­ing cer­tain fields with­out cer­ti­fi­ca­tion, and reg­u­la­tions that raise the cost of child care, such as caps on the ra­tio of chil­dren to staff in day care cen­ters.

“One way to re­duce the fi­nan­cial bur­dens of child care for both sin­gle and mar­ried fe­males con­sid­er­ing work­ing is to re­duce the direct costs of care,” the re­port says, adding, “Reg­u­la­tions that im­pose min­i­mum stan­dards on providers can de­crease the avail­abil­ity and in­crease the cost of ob­tain­ing care, thus serv­ing as a dis­in­cen­tive to work.”

Al­though the White House fore­casts con­sider those dereg­u­la­tory ef­forts and in­fra­struc­ture spend­ing to be nearly as im­por­tant to growth as tax cuts, Trump has made rel­a­tively lit­tle ef­fort to push states and Con­gress to en­act them.

The re­liance on new poli­cies to power ad­di­tional growth helps ex­plain some of the dif­fer­ence in op­ti­mism for fu­ture growth be­tween White House fore­cast­ers and their coun­ter­parts in the Fed­eral Re­serve, the Con­gres­sional Bud­get Of­fice and the pri­vate sec­tor, who all project sig­nif­i­cantly slower growth over the next 10 years than Trump does.

It does not ex­plain why the White House has so much more faith in 3 per­cent growth this year than other fore­cast­ers, who have whit­tled their ex­pec­ta­tions for 2019 in light of in­creased global ob­sta­cles to growth and weaker-thanex­pected read­ings of the do­mes­tic econ­omy so far this year.

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

The fore­cast that the Coun­cil of Eco­nomic Ad­vis­ers re­leased Tues­day pre­dicts 3.2 per­cent growth for 2019 – nearly a full point higher than the growth ex­pected by the Fed.

The chair­man of the Coun­cil of Eco­nomic Ad­vis­ers, Kevin Has­sett, said the ad­min­is­tra­tion’s faith in long-term eco­nomic growth came from their fore­cast­ers’ abil­ity to cor­rectly peg growth in 2017 and 2018.

Has­sett told re­porters Mon­day that it was the coun­cil’s job to model growth as­sum­ing the pres­i­dent’s poli­cies were fully en­acted. He said he was not cer­tain they would be.

“Ask me as an econ­o­mist, what are the odds that the tax cuts be­come per­ma­nent right now, I’d say 50-50,” Has­sett said.

But he said the coun­cil has been en­cour­aged by the early re­sults of the 2017 tax cuts, par­tic­u­larly on in­vest­ment. In a con­fer­ence call Tues­day, he said he was aware of risks to the global econ­omy this year but did not be­lieve a re­ces­sion was likely in 2020.

“The idea that we would have a re­ces­sion next year, it’s cer­tainly not im­pos­si­ble,” Has­sett said. “Re­ces­sions very of­ten hap­pen, and few peo­ple see them com­ing. But it would be very un­usual for such a thing to hap­pen given the max­i­mum amount of cap­i­tal spend­ing and new ca­pac­ity that’s be­ing brought on­line.”

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