Some analysts suggested that the government is essentially admitting that the proposed rise in federal spending – which government officials want to offset over time with higher taxes on the rich and corporations – will not give the economy any major boost at all.
“They clearly don’t understand the implications of your release,” 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 with spending $ 4 trillion there will only be 2 percent real growth, then you have to believe that either the $ 4 trillion is powerless, or that inflation is high and therefore significant lead to nominal growth instead of real growth. ”
When the White House Introduced the $ 1.8 trillion American Families Plan“To complement the $ 2 trillion infrastructure proposal, the administration said it would” generate significant economic returns – which would increase productivity and economic growth, and sustainably create a larger, more productive and healthier workforce. “
The basic idea was that providing a universal preschool, adding two years of free community college, and extending paid family vacations and tax credits for children would, among other things, increase productivity and bring more people, especially women, back into work.
However, the $ 6 trillion budget proposal released today does not show a huge surge in growth in all proposed spending, including infrastructure investments in the US 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 forecasts After 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 Bureau of Administration and Budget and the Finance Department. That was before the White House officially introduced the American Employment Plan and the American Family Plan.
Rouse said the projections were based on 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 have a huge impact on the output and income our economy generates over time,” said Rouse. She added that the difference between the CBO’s forecast of 1.6 percent and the White House’s forecast of 2 percent would result in the economy adding $ 4.8 trillion to inflation-adjusted US over a 10-year period Dollars or 1 trillion US dollars more than Germany’s annual GDP.
Other people close to the administration cited different reasons for the conservative figures. They said some elements of Biden’s infrastructure and family plans – such as spending more on green technology – could stimulate the economy more than the budget proposal suggests, but current models cannot explain that potential growth.
And the White House wanted to play it safe after President Donald Trump’s administration repeatedly made rosy predictions that tax cuts and deregulation would lead to growth of 3 percent or more for years. The Trump administration saw 3 percent growth in just one year of his presidency.
Economists who supported the government’s approach agreed with Rouse’s reasoning that what looks like small growth spikes on paper would actually mean a lot over a 10-year horizon.
“Estimates of potential growth are generally 1.7 percent or 1.8 percent for the decade as a whole,” Jason Furman, chairman of the Obama Council of Economic Advisers, said in an email. “If their plan were to increase the growth rate by 0.1 or 0.2 percent per year, it would actually be very high in macroeconomic terms.
Furman added in a tweet that he was “glad to see what appears to be a return to responsible economic assumptions in budgeting”. And he said, “Many of the benefits of the president’s policies are improvements in inclusion, opportunity, climate, etc. Even if they didn’t add anything to growth, they would probably still be an improvement.”
Officials in the last administration sharply criticized the White House budget and its relatively lukewarm growth forecasts.
“If that’s all then why?” said Larry Kudlow, director of the National Economic Council under Trump. “In case you haven’t noticed, there’s a Trump boom. If it ain’t broken, don’t fix it.”