Some analysts have suggested that the administration is essentially admitting that its proposed increased federal spending – which administration officials hope to offset over time with higher taxes for the rich and corporate – won’t boost at all. the economy.
“They clearly don’t understand the implications of what they are publishing,” said Richard Bernstein, founder of the investment advisory firm. Advisors Richard Bernstein. “The 2% trend is real [after inflation] growth. So if they think that there will only be a 2% trend real growth with spending of $ 4 trillion, then they must believe that the $ 4 trillion will be powerless or lead to a lot of loss. inflation and therefore substantial nominal growth instead of real growth. “
When the White House rolled out the $ 1.8 trillion “American Plan for Families” to add to its roughly $ 2 trillion infrastructure proposal, the administration boasted that it would “generate revenue. significant economic returns – by boosting productivity and economic growth, producing a larger, more productive and healthier workforce on a sustainable basis.
The idea behind it was that providing a universal preschool, adding two years of free community college, and extending paid family leave and child tax credits – among other things – would increase productivity and bring back more people, especially women in the labor market.
But the $ 6 trillion budget proposal released today doesn’t show much of a boom in growth from all proposed spending, including infrastructure investments in the U.S. Jobs Plan.
Instead, the forecast for annual growth below 2% is little different from current models like that of the Congressional Budget Office. The CBO predicts that after the rebound from the Covid-19 crash eases, growth will return to around 1.6% per year.
In a conference call with reporters to discuss the draft budget, Council of Economic Advisers President Cecilia Rouse said the economic forecast was made in February by the CEA, the Office of Management and Budget. and the Department of the Treasury. This was before the White House officially introduced the US Jobs Plan and the US Family Plan.
Rouse said the forecast assumed some of the proposed spending policies, but not all, adding that the economic climate has improved significantly since February. She also said that growth reaching 2% in 2030, as the budget predicts, would produce big gains beyond most current forecasts.
“Seemingly small differences in real GDP growth can end up having huge effects on the production and income that our economy generates over time,” Rouse said. She added that the difference between the CBO’s 1.6% forecast and the White House’s 2% would result in an additional $ 4.8 trillion saving in inflation-adjusted dollars over 10 years, or $ 1,000 billion. dollars more than Germany’s annual GDP.
Other people close to the administration cited other reasons for the conservative numbers. They said some elements of Biden’s infrastructure and family plans – such as increased spending on green tech – could boost the economy more than the budget proposal suggests, but current models cannot. ignore this potential growth.
And the White House wanted to err on the side of caution, they said, after President Donald Trump’s administration repeatedly issued upbeat forecasts suggesting that tax cuts and deregulation would produce years of growth. 3% or more. The Trump administration has achieved 3% growth in just one year of its presidency.
Economists favoring the administration’s approach echoed Rouse’s argument that what on paper looks like small increases in growth would actually mean a lot over a 10-year horizon.
“Potential growth estimates are generally around 1.7% or 1.8% for the entire decade,” said Jason Furman, chairman of the Council of Economic Advisers under Obama, in an email. “If their plan added 0.1% or 0.2% per year to the growth rate, that would actually be very important in macroeconomic terms.
Furman added in a tweet that he was “happy to see what appears to be a return to responsible economic assumptions in budgeting.” And he said that “many benefits of the president’s policies improve inclusion, opportunities, climate, etc. So even if they added nothing to growth, they would still be an improvement.”
Officials in the last administration sharply criticized the White House budget as well as its relatively lukewarm growth forecasts.
“If that’s all you get, why do it?” Said Larry Kudlow, director of the National Economic Council under Trump. “In case they haven’t noticed, there’s a Trump boom going on. If it is not broke, do not fix it.