Congress’ budget experts don’t believe that the Trump administration’s tax cuts and regulation-cutting will usher in the new era of 3 percent growth that President Trump promised.
The Congressional Budget Office issued projections Monday showing that growth will average just 1.9 percent, adjusted for inflation, over the next 10 years, cracking 3 percent only this year.
The projections are the first from the agency to reflect the policies enacted by Trump working with the GOP Congress in his first year.
The agency does believe that the tax cuts will boost economic growth, but not as much as the administration and Republicans have suggested.
The CBO sees the tax overhaul increasing the level of GDP by 0.7 percent on average over the next decade. That is about in line with projections from outside entities such as the International Monetary Fund and Goldman Sachs.
While it is a boost to the economy, it’s not enough to keep it at 3 percent sustained growth.
According to the CBO, the tax overhaul will boost growth in the short run by allowing families and companies to keep more of their money, adding to spending and running the economy hot.
Over time, the lower rates of taxation on investment and labor will boost the capacity of the economy by encouraging businesses to invest more and people to work more. But that “supply-side” effect will be undercut in later years because the cuts would add to the federal debt, which in turn would raise interest rates, making it harder for businesses to borrow to invest.
The economy will have to have “a soft landing at some point,” after absorbing stimulus in the form of tax cuts and spending increases in the next few years, CBO Director Keith Hall said.
Altogether, the CBO sees slightly better economic growth over the next decade than it did last year, although at the cost of significantly higher debt.
Last year, the CBO estimated that GDP growth would clock in at 1.8 percent between 2017 and 2027. This year, over the same time frame, it sees growth of 2 percent.
The best news is that the agency now sees unemployment falling as low as 3.3 percent in the years ahead. Previously, it saw 4.2 percent as the floor.
