The central pitch for the Trump administration’s proposed federal budget is that it will jump start economic growth. “A New Foundation for American Greatness,” as the budget revealed on Tuesday is being called, promises a spike in annual GDP growth over the next decade from less than 2 percent to 3 percent.
This surge in economic activity will then, ostensibly, boost the government’s revenue and allow the federal budget to balance out — even once a series of colossal tax cuts on the rich are factored in.
It’s a wild promise to make, and one that few economists are taking seriously. The Congressional Budget Office, for example, projects that the economy will grow by approximately 1.9 percent annually over the next decade. But White House Office of Management and Budget Director Mick Mulvaney thinks the CBO just isn’t thinking big enough. He has a theory about what makes spectacular growth achievable.
“Right now, one of the things that touches on the budget and how we get three percent growth, we need folks to work. We do,” said Mulvaney at a Monday press briefing on the Trump administration’s budget. “We need people to go to work. If you’re on food stamps, and you’re able-bodied, we need you to go to work. If you’re on disability insurance and you’re not supposed to be — if you’re not truly disabled, we need you to go back to work. We need everybody pulling in the same direction.”
In other words: President Donald Trump will accelerate growth by cutting food stamps and disability benefits. Forcing the layabouts who rely on those programs to find jobs will provide a much-needed shot of adrenaline to the economy.
This is a new spin on an old talking point of the congressional GOP’s hard right, favored by both the Freedom Caucus (Mulvaney’s ideological home when he was a congressman) and House Speaker Paul Ryan (R-WI). The idea is that the social safety net encourages “dependency”; by guaranteeing that people have basic provisions such as food and housing regardless of whether they work, it saps their will to do so. As Ryan put it in 2012: “We don’t want to turn the safety net into a hammock that lulls able-bodied people to lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives.”
Mulvaney is arguing that the “dependency” engendered by these programs is causing so many people to shirk an honest day’s work that it’s actually dragging down the United States’ labor force participation rate — and slowing economic growth to a crawl in the process.
As a right-wing morality play, the story has a certain internal logic. But it’s not backed up by real world evidence, according to Center on Budget and Policy Priorities chief economist Chad Stone.
“There’s a big theory among conservatives that the safety net discourages work because of the purportedly high marginal tax rates, meaning the loss of benefits for each dollar of income you earn,” said Stone. “But … the average person does not think in terms of marginal tax rates and programs like SNAP [Supplemental Nutrition Assistance Program, also known as food stamps] are set up so that you continue to earn SNAP benefits, although at a somewhat reduced amount, when you have additional earnings. I don’t think there’s much evidence about the safety net discouraging work to the extent that conservatives mean.”
“These programs do not have a big effect on labor supply, so by cutting them you cause a lot of pain for very little movement toward getting people into the labor market,” said Economic Policy Institute chief economist Heidi Shierholz in an email.
Low-income people also can’t be pushed into obtaining work if there’s no work to be found. While it’s true that firms across the United States have complained of a shortage in applicants, that doesn’t mean people outside the labor pool can be easily slotted into those jobs. One reason why so many states have waived work requirements on food stamps is a lack of available jobs — and even job training programs — for beneficiaries.
“Forcing people to find jobs that don’t exist to get to 3 percent growth just doesn’t make sense,” said Harry Stein, director of fiscal policy at the Center for American Progress. (ThinkProgress is an editorially independent news site housed at the Center for American Progress.)
Oddly enough, by attributing slow GDP growth to a pool of food insecure and disabled people who should be working harder, Mulvaney skipped over a key justification for the Trump budget’s starry-eyed projections. In the “Analytical Perspectives” volume appended to the budget, the Trump administration says it will juice the economy by raising labor force participation and productivity. The explosion in productivity will come, the administration insists, from “deregulation, tax reform, an improved fiscal outlook, inducements for infrastructure investment, and health care reform, which should boost investment and bolster the incentives to save.”
“Anyone can make a budget balanced when they just make up the numbers.”
But the notion that cutting Medicaid, repealing the estate tax, and allowing factories to dump toxic waste with impunity could generate the required productivity also seems a little dubious. In an analysis published earlier this month, Stone found that the United States would need to undergo an increase in productivity “higher than any previous sustained period of productivity growth on record in the post-World War II period” to generate the numbers that Trump is promising. Perhaps that’s why the gap between the White House’s projections and the CBO’s more tempered estimates is wider than at any point in recorded history.
But that’s not the only reason. In addition to overpromising on what punishing low-income households will do to labor force participation and productivity, the White House is getting creative with its arithmetic. The funny business started even before President Donald Trump’s inauguration, when members of his transition team told the Council of Economic Advisers “to predict sustained economic growth of 3 to 3.5 percent,” as the Washington Post’s Catherine Rampell reported in February. From the very beginning, the Trump administration has been picking the numbers it wants and then working backward from there.
In its new budget, the administration also tries some sleight of hand with the bounty of this fantastical 3 percent growth. They’re “double counting” the revenue generated from this growth, said Stein, in order to claim that it both decreases the deficit and cancels out the revenue lost from cutting taxes. Even if the growth were real, counting it once would only get the White House deficit reduction or revenue-neutral tax cuts — not both.
“They’re going to say tax reform is revenue neutral because of growth,” said Stein. “And then they’re going to say they reduced the deficit a bunch, because of growth.”
Writing in the Washington Post on Tuesday, former Treasury Secretary Larry Summers said this double counting “appears to be the most egregious error in a presidential budget in the nearly 40 years I have been tracking them.” CNBC’s John Harwood pressed current Treasury Secretary Steve Mnuchin on that point during a panel at the Peterson Foundation’s 2017 Fiscal Summit later that day.
“The issue is more of, this is a preliminary document that will be refined as we go through a process with Congress,” said Mnuchin in the budget’s defense.
But speaking to ThinkProgress, Stein had a simpler explanation for the imaginative math in the budget. “Anyone can make a budget balanced when they just make up the numbers,” he said.