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Some analysts suggested that the government is essentially admitting that the planned increase in federal spending – which administrators want to offset over time with higher taxes on the rich and corporate – will not really boost the economy.
“They clearly don’t understand the implications of what they post,” said Richard Bernstein, founder of the investment advisory firm Richard Bernstein consultant. “The 2 percent trend is real [after inflation] Growth. So if you believe that on spending $ 4 trillion there will only be trending growth of 2 percent, then you have to believe that the $ 4 trillion is either impotent or leading to high inflation and therefore significant nominal Will lead to growth instead of real growth. ”
When the White House introduced the $ 1.8 trillion American Families Plan to expand its $ 2 trillion infrastructure proposal, the government boasted that it would “generate significant economic returns – productivity and economic growth increase, bigger, more productive and sustainably healthier employees. “
The underlying idea was that providing a universal preschool, two years of free community college, and expanding paid family vacations and child tax breaks – among other things – would increase productivity and drive more people, especially women, back into work.
But the $ 6 trillion budget proposal released today does not show a huge surge in growth from all of the proposed spending, including infrastructure investments in the American employment plan.
Instead, the annual growth forecast of less than 2 percent hardly differs from current models such as that of the Congressional Budget Office. The CBO predicts that after the recovery from the Covid-19 crash subsides, growth will return to around 1.6 percent per year.
Speaking on a conference call with reporters to discuss the budget proposal, Chair of the Council of Economic Advisers Cecilia Rouse said the February economic projections were made by the CEA, the Office of Management and Budget and the Treasury Department. That was before the White House officially introduced the American Jobs Plan and the American Families Plan.
Rouse said the forecasts adopted some of the proposed spending policies, but not all, adding that the business climate has improved significantly since February. She also said that growth of 2 percent in 2030, as the budget predicts, would bring significant gains beyond most current projections.
“Seemingly small differences in real GDP growth can end up having a huge impact on the output and income our economy generates over time,” said Rouse. She added that the difference between the CBO’s 1.6 percent projections and the White House’s 2 percent projections would mean that over 10 years, adjusted for inflation, the economy would produce $ 4.8 trillion more, or $ 1 trillion more than the annual GDP of Germany.
Other people closely related to the administration cited other reasons for the conservative figures. They said some elements of Biden’s infrastructure and family plans – like increased spending on green technology – could boost the economy more than the budget proposal suggests, but that current models cannot account for that potential growth.
And the White House wants to play it safe, they said after President Donald Trump’s administration repeatedly made rosy projections suggesting tax cuts and deregulation would drive growth of 3 percent or more for years. The Trump administration grew 3 percent in just one year of his presidency.
Economists who support the government’s approach agreed with Rouse’s argument that what looks like small growth spikes on paper would actually mean a lot over a 10-year horizon.
“Estimates of growth potential are generally 1.7 percent or 1.8 percent for the entire decade,” Jason Furman, chairman of the Obama Council of Economic Advisers, said in an email. “If your plan were to increase the growth rate by 0.1 or 0.2 percent per year, that would be very large in macroeconomic terms.
Furman added in a tweet that he was “glad to see a return to responsible economic assumptions in budgeting”. And he said, “Many of the benefits of the president’s policies are improvements in inclusion, opportunities, climate, etc. So even if they didn’t add anything to growth, they’d probably still be an improvement.”
Officials in the last administration sharply criticized the White House budget and its relatively mild growth forecasts.
“If that’s all you get, why?” said Larry Kudlow, director of the National Economic Council under Trump. “In case you haven’t noticed, there is a Trump boom. If it’s not broken, don’t fix it. “