One of the most questionable components of the Trump budget proposal is the fundamental question of the impact the budget could have on the national debt. In fact, many conservative Republicans (Donald Trump included) ran on a platform of repealing Obamacare and reducing the debt. One way that the Trump administration tries to get the budget to balance is by projecting aggressive growth. The thinking is that reducing taxes and regulation will stimulate the economy and increase productivity which will lead to greater revenue for the treasury. Aside from the fact that many, many economists dispute this supply side model, the Trump budget relies on an incredibly optimistic projected 3% economic growth through 2025. Our current growth is 1.9% and increasing growth by 1.1% is, according to most economists, an enormous challenge in a mature economy.
So, how realistic is it to achieve 3% growth?
While there are a number of factors that drive economic growth, it is to a large degree a function of changes in the labor force. These changes can come two different ways:
- Increasing the number of workers in the workforce.
- Increasing the productivity of workers in the workforce.
Increasing the Workforce: With unemployment continuing to decline across most of the U.S. and some regions struggling to find enough workers, there is not a large, untapped labor pool that can increase the number of workers and drive up economic growth. Historically one of the greatest workforce booms came in the 70’s when many women began seeking employment. Other spikes during the past 100 years have come at times when immigration led to a surge in workers. Unemployment is now at 4.4%, the lowest it has been in over a decade and lower than before the great recession so there are no longer millions of Americans looking for employment.
The graph clearly indicates that there is not a large number of potential workers waiting in the wings to help produce 3% economic growth. The other possibility, then, could be an influx of workers from other parts of the world which is pretty clearly NOT part of the Trump plan for America.
Improving Worker Productivity: If it’s impossible to increase the number of workers in the workforce it is still possible to increase economic growth by increasing the productivity of workers. For this to happen, however, the government would need to actively help employers and potential workers develop skills that would make them more productive. Unfortunately, this also seems like it is also not a priority of the Trump administration. While the impact of the Trump budget proposal is still being sorted out, Trump is calling for a dramatic cut – as much as 40% – to federal job training programs. Without committing the resources necessary to increasing productivity it’s not clear how the Trump administration thinks this will happen.
Aside from clearly documented shoddy accounting in his budget proposal, the Trump budget is not revenue neutral because it relies on absurd growth projections without a plan for achieving them.
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