Economists Doubt 3% Growth Premise Behind Trump's MAGAnomics

The White House's math to make the United States economy great again doesn't quite add up.

The Trump administration unveiled its strategy for the economy last week, laying out a set of policies it says will lead to sustained 3% growth. Branded as "MAGAnomics," the focus of the plan is "simple," wrote Office of Management and Budget Director Mick Mulvaney in a Wall Street Journal op-ed: "Grow the economy and with it the wealth of, and opportunity for, all Americans."

Economists and observers are dubious of just how MAGAnomics works.

"My take on it is that 3% has always been on the outer bounds of what you could do if you ran the table on good economic policy," said Doug Holtz-Eakin, an economist at the conservative American Action Forum and former Congressional Budget Office director.

"They're relying on the claim that lower taxes and less regulation have a big effect on the growth rate, and I think most economists would agree that you would expect to get some of that, but they would be pretty skeptical [of the size]," said Jeffrey Miron, a Harvard economist and director of economics studies at the libertarian Cato Institute.

The White House insists it can achieve 3% economic growth through a mix of tax reform, deregulation, welfare reform, infrastructure spending, "smart energy strategy," government spending restraint and "fair trade." The administration projected its proposed budget, unveiled in May, would lead to 3% growth and balance, proposals disputed by the CBO's scoring of the budget last week.

For context, GDP grew by 1.6% in 2016, and the Congressional Budget Office currently forecasts 1.9% growth over the next decade. The U.S. hasn't seen annualized GDP growth of more than 3% since 2004.

University of Michigan economist Justin Wolfers said 3% growth is possible and a useful goal but said it is "absurd" to assert it is the likeliest outcome.

"We've achieved 3% growth in the past partly when assisted by rapid population growth, and favorable demographics," Wolfers said. "We are certain that both will be headwinds over the next few decades, as fertility has slowed, immigration looks likely to decline, and as the baby boomers enter retirement. And all of this occurs against a backdrop of relatively weak productivity growth, and with an economy that is closing in on full employment."

Some parts of what Trump is proposing would likely boost the economy -- tax reform, deregulation, infrastructure. But beyond the one-page set of principles unveiled in April, the White House has yet to offer a fleshed out plan for taxes. And there are other elements of Trump's platform that would hinder growth -- namely, restrictive immigration policies and protectionism on trade.

"The only way the administration would be able to achieve its goal of 3% sustained real GDP growth would be to significantly increase foreign immigration into the U.S.," said Moody's Analytics economist Mark Zandi. "Unfortunately, it appears to be going in the opposite direction, and working to restrict immigration. Tax reform, more effective regulation, and much more infrastructure spending would be very helpful to supporting stronger growth, but it won't get the economy to 3% on a sustained basis, at least not anytime soon."

"The concept of promoting durable growth in the U.S. via stronger productivity growth, greater infrastructure spending, smart energy, welfare reform and fair trade seduces everyone," said Gregory Daco, chief U.S. economist at Oxford Economics. "The issue is that the policy being proposed by the administration won't lead us to these objectives."

He added that the administration appears to be leaning increasingly on anti-growth measures as it struggles to move forward with its pro-growth agenda.

Trump and his aides are working with conservative Senators Tom Cotton (R-AR) and David Perdue (R-GA) on legislation that, if signed into law, would slash in half the number of legal immigrants entering the country each year, Politico reported last week. The president is mulling tariffs on steel that have the potential to spark a trade war if enacted.

"If you're going to take one step forward and two steps back, it's going to be harder to get to [3% growth," said Holtz-Eakin.

"Their negative views on free trade and immigration are incredibly counterproductive," Miron said. "Fair trade is code for 'not just free trade.' That's a terrible mistake."

To be sure, Trump isn't the first president to make unrealistic promises on the economy. The Washington Post's Heather Long noted the Obama administration made similar mistakes during the financial crisis on jobs.

Much of what Trump is currently proposing would advantage the wealthy, Wolfers said. The administration has called for reduced spending on programs that help the poor, and what it has put forth thus far on taxes would disproportionately benefit the wealthiest Americans while doing very little for the middle class.

"Perhaps it's fair to say that some people will see their disposable incomes rise at an annual rate of 3%," Wolfers said. "But mostly they'll be rich people, whose gains will come at the expense of the poor."

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