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

by

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.

34 thoughts on “Sustained economic growth or spending cuts would US closer to balanced budgets”

  1. Not it won’t reduce ‘spending’. You do realize that whatever the government spends it takes from others in the economy who would have spent anyway…and far more wisely. Oh wait! You think the rich have hoards of money in Scrooge McDuck money bins!

  2. He thinks the rich ‘hoards’ the money like as if they stuff it in mattresses in cash or even store it in Scrooge McDuck-like money bins.It was quite a shock to him when I explained that even money stashed into a bank account gets loaned out and then cycled through the economy. I’ve bene ribbing him about that ever since…which was like 5 years ago or so.

  5. He thinks the rich ‘hoards’ the money like as if they stuff it in mattresses in cash or even store it in Scrooge McDuck-like money bins. It was quite a shock to him when I explained that even money stashed into a bank account gets loaned out and then cycled through the economy. I’ve bene ribbing him about that ever since…which was like 5 years ago or so.

  8. Not it won’t reduce ‘spending’. You do realize that whatever the government spends it takes from others in the economy who would have spent anyway…and far more wisely. Oh wait! You think the rich have hoards of money in Scrooge McDuck money bins!

  11. He thinks the rich ‘hoards’ the money like as if they stuff it in mattresses in cash or even store it in Scrooge McDuck-like money bins.

    It was quite a shock to him when I explained that even money stashed into a bank account gets loaned out and then cycled through the economy.

    I’ve bene ribbing him about that ever since…which was like 5 years ago or so.

  12. Not it won’t reduce ‘spending’.

    You do realize that whatever the government spends it takes from others in the economy who would have spent anyway…and far more wisely.

    Oh wait! You think the rich have hoards of money in Scrooge McDuck money bins!

  13. Is is considered one of the worst economic forecasters. Claimed 90s boom wasnt happening, Missed out 2001, denied housing recession in 2007, pretended 2008 never happened etc etc etc

    Google ‘Larry Kudlow’s history of bad economic calls’, quite impressive really. He might make a wonderful contrarian signal (to bet against)

  16. So to make sure we are all on the same page… I think your assuming that reduced spending has a pre-requisite tax reductions. Not absolutely sure, but since we have debt… its possible that they stop spending but move that money to service debt obligations. Which could be done without reducing taxes.

    Also, if the tax reduction ends up going to people who can afford to just shove it into their bank accounts. The likely hood of you seeing a increase in economic efficiency, though I think you really mean increase in economic output. Is slim to none. Especially if that tax cut is given when the private sector believes it is already operating at peak economic efficiency.

  17. So what? Economic liberty with it’s ups and downs produces more growth than does a “managed” economy.

    The greatest goal for the greatest good, is that it that in eyes of the Left, that the country be made “ungovernable”.

  20. Attention Leftist idiot, federal spending is not performed in a way which maximizes economic efficiency, and any money the fed doesn’t tax away from people would be allocated more efficiently and faster, growing the GDP.

    That is the action and reaction to reducing federal spending, and has been shown to be such every time taxes are reduced.

  21. It is usually speculation that cause depressions and we reward speculation with the lower capital gains tax. Maybe capital gains tax should be higher that regular income tax.

  22. One quarter of 4%+ GDP growth and people get giddy. Even with the $trillion of deficit spending it is doubtful the economy will have 4%+ growth for the next ten years. So the Trump tax cut will never be revenue positive or neutral.

  23. Cutting Spending is almost impossible but if it ever did happen the reduce spending would reduce GDP and result in lower revenue. The economy is interconnected so for every action there is a reaction.

  24. Our government has also been rigging the consumer price index, to conceal the actual inflation rate. They do that in part for public relations, but mostly so that various benefits which are linked by law to inflation could be reduced in real terms. And to keep interest rates down on the debt.

    Everybody who buys groceries knows inflation has been much higher than the government has been willing to admit.

  25. Oh, come on. Sustaining 3-4% growth rates for years on end is historically normal in this country. We’ve just been going through a couple of bad decades, and rebelled against being told to get used to it.

  27. Wrong conclusions based upon bad examples. The only reason the US has not experienced massive inflation is the dollar is the worlds reserve currency. The US is on uncharted territory since the world has never seen a worlds reserve currency inflated out of existence. Side note: the real inflation rates are much higher than the rigged US reporting which changes all the calculations. The Chinese have created a gold backed Won note and the Iranians and Russian are moving away from treasuries/dollar reserves into gold. It will be interesting to see if the US starts a war to try and stop their dominance in the worlds financial markets.

  28. I know why don’t we try something really radical. How about eliminating capital gains tax and have everyone straight income taxes? Here is another one how about eliminating the cap of social taxes like SS ($115). How about eliminating the welfare for corporations and big agribusinesses? How dare we proposed just a fare tax for the rich. I know making the wealthy pay their fair share of taxes if “communism” “socialism” jealousy of the rich etc etc etc. Over 10,000 pages of tax code and most are loopholes for the corporations and wealthy while about 300 are for the middle class worker.

  29. The Congressional Budget Office initially scored the cost of Trump Tax Cuts at $1.4 Trillion.
    They re-scored three months ago saying increased economic activity increased tax revenues and reduced costs for social welfare. The re-scored cost was $400 Billion. But, the re-scored number was calculated using a 2.8 percent growth rate.

    At the current growth rate – the Trump Tax Cuts are income neutral or positive.

  30. …which in turn led to the 2000-2003 recession, as gov’t surpluses rend to do by taking money out of the economy: http://neweconomicperspectives.org/2018/08/how-democratic-party-mendacity-about-deficits-and-banksters-lifted-trump.html
    Obama could have gotten us out of the Great Recession faster by spending twice as much on fiscal stimulus and foregoing austerity measures once things started to pick up a little around 2011.
    And feeding the top 1% rentier class won’t grow the economy, because that class literally cannot consume anymore. They are so saturated that they can only create Asset Bubbles in stocks, bonds, land, etc., which just make those things more expensive for everyone else (i.e. price inflation).
    And Debt-to-GDP ratios are a terrible measure of economic health anyway. North Korea has zero foreign debt because no one in their right mind would want to lend to that economic black hole. Greece, OTOH, has essentially infinite debt it can never repay because it is being used by the EU as a vehicle to prop\ up otherwise insolvent banks. Neither extreme are countries anyone would want to live in (Greece is better, but still bad in the OECD world). GENERALLY speaking, countries with higher debts are better places to live: the U.S., Japan, etc., but it is a weak correlation and not casual.
    What matters more is economic sovereignty (the U.S. Japan) vs. non-sovereignty (all the EU countries), and even more what money is spent on. If it is spent on economic parasites who don’t create – like the upper class of rent-seekers – it won’t grow the economy. If producers, workers, and entrepreneurs are allowed to keep what they make, it will.
    Rent seekers actually oppose progress and growth because innovation decreases their ability to collect rent. That’s why Thomas Picketty found historical examples of rent-seeking societies with near zero growth. The U.S. has been saved that experience, so far, by deficit-spending. If budgets are balanced, we will go into a deep recession and may not even recover from it.
    Oh, and most Treasuries are bought domestically, not by foreign buyers, so China selling off our Treasuries is not a worry.

  33. A sustained 4%+ growth or even 3%+ growth for the US is pure science fiction
    The US is now growing around 1.5% per year, maybe 2% or something less, additional growth comes from more debt
    US debt has grown some 7% last year so the US is now in a bubble
    Soon growth will be around zero or even negative when the US will have to repay the beloved debt back to China
    Trump is piling up debt to spur growth a little bit hoping that the US economy will not crach before 2020 so he will be able to definitely ge reelected. This is in few words his plan
    I do not think if he is going to make it
    point is a 3% growth for the US is not going to last

  34. Both. But if you want it to happen for sure, spending cuts.

    Not the spending cuts in Washington-speak which is ‘cuts in the growth of spending’, but actual cuts.

    Heck, all you really have to do is freeze the growth of spending and over time the budget will balance itself. That, along with high economic growth, is how we did balanced the budget so fast in 1999/2000.

Comments are closed.