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Trump's MAGAnomics get a CBO reality check

  • The Trump administration claims that its proposed budget and domestic policies would boost economic growth to levels not seen in decades.
  • But the nonpartisan Congressional Budget Office remains unconvinced.
  • Much depends on which Trump campaign promises make it into new legislation, including a series of policies spelled out by Mick Mulvaney in an op-ed, which took issue with skeptics of the White House economic growth targets.

Despite Trump administration claims that its proposed budget and domestic policies would boost economic growth to levels not seen in decades, the nonpartisan Congressional Budget Office remains unconvinced.

"Because details of the proposed policies are not available at this time, CBO cannot provide an analysis of all their macroeconomic effects," the agency said in its report.

As a result, the CBO said it expects the economy to continue chugging along at a relatively sluggish 2 percent annual pace, with a modest bump at the end of its 10-year forecast timeline.

But White House budget director Mick Mulvaney, in an op-ed in The Wall Street Journal "Introducing MAGAnomics," on Thursday laid out a seven-point plan to boost U.S. gross product to a 3 percent annual pace.

That difference of roughly a percentage point may not sounds like much but the faster pace of growth, if achieved, would produce millions of additional jobs and trillions in new revenue to help the government balance the budget and reduce the pace of borrowing.

The CBO analysis of Trump's budget proposal, though, said in its analysis that there is not enough evidence that such added growth will materialize. That means the proposed White House budget will come up short by some $3.7 trillion in new revenue it forecast over the next 10 years

A lot depends on just which of Trump's campaign promises actually make it into new legislation, including a series of policies spelled out by Mulvaney in Thursday's op-ed, which took issue with skeptics of the White House economic growth targets.

"We heard the same pessimism 40 years ago, when the country was mired in 'stagflation' and 'malaise.'" Mulvaney wrote. "But Ronald Reagan dared to challenge that thinking and steered us to a boom that many people thought unachievable."

It's true that the U.S. economy entered an extended boom after the great inflation of the 1970s, which ravaged the economy with ruinous, double-digit inflation. But many economists note that much of the credit for the revival goes to Federal Reserve Chairman Paul Volcker, who engineered a quick, painful period of double-digit interest rates that broke the inflation fever and unleashed a wave of pent-up investment.

Meanwhile, Reagan used a "supply side" economic policy of massive tax cuts in an attempt to spark growth. President George W. Bush engineered a similar package of tax cuts that did little to stimulate growth.

Mulvaney also cited tax reform as a means of boosting capital investment to create jobs.

"We need to boost productivity," he wrote. "When businesses invest more in new plants and equipment they tend to hire more people who produce more."

But much of the capital investment in the last decade has gone toward equipment and software that automates production. While that may boost the amount of goods and services each worker produces, it has allowed companies to produce more with fewer workers, not more.

Mulvaney also argued that tighter federal spending would be part of the plan to boost growth. Economists general agree that, in the short term, federal spending cuts tend to produce a drag on growth and additional spending,

Mulvaney also cited the need to rebuild American infrastructure, a goal that has drawn bipartisan support. There little disagreement across party lines and among economists that increasing infrastructure spending creates good-paying jobs and makes the overall economy more productive.

But the Trump administration has yet to formally propose how that rebuilding program would be paid for. Trump has called for public-private partnerships to pay for much of the work, but it remains to be seen how many projects could be made profitable enough to attract investors.

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