The White House's top economist said Wednesday the U.S. could achieve annual growth rates of 3 percent through the next decade if President Donald Trump's policies on regulations and infrastructure are enacted.
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The Council of Economic Advisers released its annual economic report, which praises the effects of the tax cuts and tax overhaul signed into law by Trump last December. The report forecasts an overall average annual growth rate of 2.2 percent through 2028.
But with the "full implementation of the Administration's agenda," including the implementation of the tax law, additional cuts to regulation and a sweeping infrastructure plan, the projected growth rate reaches 3 percent through the next decade, said the report.
The economic projections are more subdued than the bold predictions made by the president in recent months. Trump suggested in December he saw "no reason why we don't go to 4 percent, 5 percent, and even 6 percent."
Yet even 3 percent growth for the next decade is much more optimistic than most independent economists' forecasts. Wall Street economists generally expect the administration's tax cuts will accelerate growth this year and next, to between 2.5 percent and 3 percent. But they expect the impact to fade by 2020.
"It seems unlikely and inconsistent with recent trends," Carl Tannenbaum, chief economist at Northern Trust, said, referring to the administration's projection.
Federal Reserve officials have a similar view. Robert Kaplan, president of the Federal Reserve Bank of Dallas, said Wednesday that the economy will likely expand just 1.75 percent to 2 percent in 2020.
Some of the benefit from tax cuts may be offset over time by higher interest rates. Fed officials have indicated they expect to raise short-term rates three more times this year. Higher rates are intended to cool borrowing and spending.
Slower population growth and weak gains in productivity — a measure of the economy's efficiency — are also weighing on the economy's long-term growth rate, Kaplan said.
Kevin Hassett, chairman of the CEA, argues that the administration's slashing of the corporate tax rate to 21 percent from 35 percent will spur more corporate investment in software, machinery and other equipment. That investment, in turn, should boost productivity and enable a faster expansion, Hassett says.
The report forecasts that productivity will grow at a 2.6 percent pace in the next decade, above its average rate of 2 percent in the past 50 years. That's also more than double the rate in the past decade. Few analysts expect such a surge.
The report says Trump's "pro-growth policy agenda," including the tax cuts and efforts to cut regulations, "have inspired enormous confidence in the economy and optimism that it will continue thriving."
Consumer and business confidence has soared. But the question is whether spending and investment will follow. Consumer spending rose at a healthy clip in the final three months of last year, partly because Americans saved less. That trend may reverse in the coming months.
The White House report argues that the economy was stagnant under Trump's predecessor, former President Barack Obama, but the president's first-year policies have rejuvenated the economy's long-term outlook. Many economists, however, have said Trump inherited a sturdy U.S. economy at the end of Obama's presidency, which started during the economic upheaval of the nation's recession.
"We've restored economic policies to where a sensible, rational country would put them," Hassett said.
The report repeats the administration's estimate that the tax bill is expected to raise the average American's household income by more than $4,000. Most mainstream economists and Democrats have expressed skepticism about those projections. An estimate by the nonpartisan Tax Policy Center estimated the average household income would rise more than $1,600 in 2018 because of the tax cuts.