Sustained economic growth or spending cuts would US closer to balanced budgets

The CBO has analyzed what might happen to the budget deficit if key economic variables differed from those in the agency’s current economic forecast:

The growth of productivity and, consequently, the growth of real (inflation-adjusted) gross domestic product (GDP);
Labor force growth and, in turn, real economic growth;
Interest rates; and
Inflation.

The White House budget office now estimates that the deficit will rise to nearly $1.1 trillion in the fiscal year that begins this October, or 5.1% of gross domestic product, up from $984 billion projected in February’s budget proposal.

Larry Kudlow, economic adviser to President Donald Trump, said additional pro-growth measures could be coming soon, which could deliver a further jolt to the U.S. economy. Speaking Wednesday morning at CNBC’s Delivering Alpha conference in New York, he said the additional fiscal stimulus measures, coming after Trump’s late-2017 corporate tax cuts, could boost gross domestic product to a range around 4%.

Estimates from both the Office of Management and Budget (OMB) and CBO suggest that each 0.1 percentage point increase in annual economic growth would reduce deficits by roughly $300 billion over the coming decade.

In 2017, the Congressional Budget Office (CBO) projected under current laws and policies, the economy would grow 2.3 percent this year but growth will average just 1.9 percent a year over the coming decade (i.e., between now and 2027). As a candidate, President Trump boasted that his economic plan “would conservatively boost growth to 3.5 percent per year on average . . . with the potential to reach a 4% growth rate.”

The second quarter of 2018 reported 4.1% GDP growth. The Federal reserve of Atlanta GDP now is tracking Q3 to 4 to 5% GDP growth.

The GDP growth could conceivably last at 3.5 to 4.2% for two years. The CBO did revise expected GDP growth up in April, 2018.

The US needs to be able to sustain 3.5% for 6 to 8 years to completely offset the $1.5 trillion impact of the tax cut. Although sustained 3% GDP growth and higher labor force growth and no worsening of inflation and interest rates would also offset the tax cut impact.

There was a proposed budget for cutting overseas military spending, healthcare and student tuition. However, it was not passed. An omnibus spending bill was passed. The spending bill mostly kept increasing spending.

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