President Trump's budget only pretends to balance itself in 10 years' time by assuming that the economy will grow at a 3 percent pace between now and then, which is somewhere between wildly optimistic and wildly implausible.
It also might be the most realistic part of Trump's budget.
Now, it was always pretty obvious that Trump was relying on rosy economic projections, but the Committee for a Responsible Federal Budget has figured out by just how much. It turns out that even if the economy started partying like it's 1999, that'd only be good enough to get growth back up to 2.9 percent today. Trump's budget promises are akin to when he promised to make “every dream you ever dreamed come true.” And if neither of those propositions seem likely — if you don't think Trump can make things better than they were at the height of the tech bubble — well, then you clearly haven't taken enough classes at Trump University.
But let's back up a minute. Why has what used to be routine — 3 percent growth — become so ambitious now? Simple math. How much the economy grows depends on how much two other things do. Those are how many people are working every day, and how much work people can get done. That first part, though, isn't helping nearly as much as it used to now that so many baby boomers are hitting retirement. And that's not going to change considering that the only way to make workforce growth great again would be to force retirees to get jobs. In all, these demographic headwinds explain about half of the slowdown from the 3 percent growth we've been accustomed to in the postwar period to the 1.9 percent the nonpartisan Congressional Budget Office thinks we'll get in the next 10 years.
The rest is that the future isn't what it used to be. For all the talk of robots going after jobs, like the Terminator went after Sarah Connor, the reality is different. Technological progress of the economically useful variety has stalled out — we were promised flying cars and got Angry Birds — and companies aren't even spending that much on the things they could to make their workers more productive. These aren't easy things to change. The government could spend more on R&D itself and set up innovation prizes to try to get the private sector to do the same, but there's no guarantee that these would generate the kind of breakthroughs we had in the 1990s to speed up the economy. You can't plan on ingenuity.
Trump's budget does, though. It assumes that we can get people to invent new things and invest in old ones if we just cut the corporate tax rate. That's the implication of saying that, even with our demographic slowdown, we can kick-start 3 percent growth if we just reform the tax system. It's a fantasy. Sure, lower taxes can make companies invest more, and maybe some of those new investments will lead to new technologies, but those are relatively small-scale changes. Maybe a few tenths of a percentage of growth if we're lucky — not anywhere near enough to get us all the way up to 3 percent.
This is at least a $5 trillion problem for Trump — and maybe double that. Think about it like this. A stronger economy means that people have more money to pay in taxes and need less money in help from the safety net. Put those together, and the left-leaning Center on Budget and Policy Priorities estimates that every extra 0.1 percentage points of GDP growth reduces deficits by $300 billion over the course of a decade. Which, in turn, implies that Trump's budget is relying on over $3 trillion of, in all likelihood, illusory savings. This isn't just far-fetched, but historically so. Indeed, the 1.1 percentage point gap between the growth Trump assumes and the growth the CBO does is the most a president ever has.
But it's actually worse than that. How is that possible? Well, as the Washington Center for Equitable Growth's Greg Leiserson first pointed out, Trump appears to be double-counting these phony savings. On the one hand, Trump's Treasury Secretary Steven Mnuchin has said that faster growth will increase revenue enough to pay for all of their tax cuts. But, on the other hand, Trump's budget says that faster growth will increase revenue — by $2.1 trillion, to be exact — to pay down the existing deficit. The administration, of course, has belatedly tried to say this isn't what they're doing, but budget tables don't lie. It is what they're doing. So if you add it all up, Trump's budget is built on $5 trillion of fairy dust.
But — stop me if you've heard this before — it's actually worse than that. Even if you only count that extra $2.1 trillion of revenue a single time, it probably wouldn't be enough to pay for all of Trump's tax cuts. The nonpartisan Tax Policy Center estimates that those should cost somewhere in the neighborhood of $6 trillion to $7 trillion over 10 years' time. The administration has once again backtracked to say it will close enough tax loopholes to pay for whatever tax cuts it needs to, but it hasn't named a single one it would, and would have to go after ones it's already said it wouldn't if it wanted to raise $4 trillion or $5 trillion. Trump's budget asterisk, in other words, is probably a little more magical and a lot more expensive than he's letting on — as much as $10 trillion in total.
You'd think that fake savings this big would just be a cover for the fact that there weren't any real ones, but you'd be wrong. Trump wants to turn the safety net into a few strands of string. Over the next decade, his budget would cut Medicaid by 47 percent, food stamps by 25 percent, and welfare by 13 percent. It's a reverse Robin Hood on a scale unseen anywhere other than an Ayn Rand novel. And it might be the least realistic part of Trump's budget. After all, even congressional Republicans think it's too “draconian.”
Trump's budget is an incredible political document, a self-parodic exercise in hostility to arithmetic, economics and everyone who has the misfortune of being poor or sick. You can tell he only hires the best people.