White House budget proposal assumes 3 percent growth

It's an inexact science, but estimates tend to suggest that each additional 1 percent of annualized GDP growth will yield the U.S. Treasury an additional $400 billion in revenue in a given year. That's what static analysts miss when they scream that tax rate cuts will cost the government money. If they're pro-growth tax cuts, that need not be the case at all. Democrats pretend not to believe this, but all throughout the Obama Administration, annual budget proposals made assumptions about the rate of economic growth, and assumed that revenues would be impacted by the rate of growth. The truth is that they know it's true but they pretend otherwise in order to argue that lower marginal tax rates will be the end of society.

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You will recall once again that at no time during the Obama presidency did we have annualized growth of 3.0 percent or better in a full year, and he is the first two-term president to accomplish that ignominous goal since before World War II. The Trump Administration believes its pro-growth tax and regulatory policies are going to reverse that in 2018, and they're putting that belief into the budget proposal that will be released today:

The White House’s budget proposal—to be released Monday—assumes the economy can grow at a much stronger pace than independent forecasters expect and with lower inflation and government borrowing costs than officials projected last year, according to a preview of the proposal. Strong growth assumptions with relatively low borrowing costs, particularly in the back half of the budget’s 10-year forecast, help to show much smaller deficits as a share of the overall economy. The budget proposal projects the economy will grow about 3% over the coming decade, though officials now expect a slightly larger near-term boost, with output rising 3.2% next year before declining to 3% in 2021 and 2.8% by 2026, according to projections reviewed by The Wall Street Journal. The U.S. economy grew at a 2.5% pace last year, slightly ahead of the 2.3% projection made in President Donald Trump’s budget proposal last year. Many private forecasters also expect economic growth to pick up this year because of consumer and business spending encouraged by tax cuts signed by the GOP president in December, plus a two-year, $300 billion funding deal signed Friday. But many don’t see quite as large an increase as the administration, and they don’t see the boost lasting for nearly as long. On Friday, economists at J.P. Morgan said they now expect the economy to grow 2.6% this year and 1.9% next year.

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These longer-term projections are hardly even worth paying attention to. No one knows what will happen with economic and fiscal policy, with global markets, with new technologies, with saving . . . it's impossible to correctly assume all the factors that will determine growth in 2026. But we certainly get make a reasonable guess about what's going to happen this year and next. This will be the first year in which the lower personal and corporate tax rates are in full effect, and we'll see corporations making different investment decisions based on the opportunity to keep 14 percent of their earnings that used to have to go Uncle Sam. Almost any way they choose to allocate that capital will be more productive than paying it in taxes. The 3.0 percent growth projection for 2018 should be achievable given the pro-growth policy changes we saw put in place at the end of 2017. But it's still awfully audacious to assume it in your budget proposal, especially since you're committing to a level of spending that requires you to be right. I'd rather see the government be much more conservative in what it plans to spend - but that's for a whole host of reasons, of which this is only one.

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