Trump’s Budget Math Grapples With Economic Reality

WASHINGTON — President Trump’s budget proposals have been defined by a belief that the economy will grow significantly faster than most economists anticipate. The latest version, set for release on Monday, is a brief departure: It concedes, for the first time, that the administration’s past projections were too optimistic.

Then it goes right back to forecasting 3 percent growth, for the better part of a decade.

Mr. Trump’s $4.8 trillion budget proposal is slightly larger than last year’s $4.75 trillion request and calls for increased spending on the military, the border wall, infrastructure and other priorities, including extending the president’s 2017 tax cuts. It also includes trillions of dollars of cuts to safety-net programs like Medicaid and discretionary spending programs outside of the military, like education and the environment.

The White House makes the case that this is affordable and that the deficit will start to fall, dropping below $1 trillion in the 2021 fiscal year and that the budget will be balanced by 2035. That projection relies on rosy assumptions about growth and the accumulation of new federal debt — both areas where the administration’s past predictions have proved to be overconfident.

According to summary tables reviewed by The New York Times and interviews with administration officials, the new budget will forecast a growth rate for the United States economy of 2.8 percent this year — or, by the metric the administration prefers to cite, a 3.1 percent rate. That is more than a half percentage point larger than forecasters at the Federal Reserve and the Congressional Budget Office predict.

It then predicts growth above 3 percent annually for the next several years if the administration’s economic policies are enacted. The Fed, the budget office and others all see growth falling below 2 percent annually in that time. By 2030, the administration predicts the economy will be more than 15 percent larger than forecasters at the budget office do.

Past administrations have also dressed up their budget forecasts with economic projections that proved far too good to be true. In its fiscal year 2011 budget, for example, the Obama administration predicted several years of growth topping 4 percent in the aftermath of the 2008 financial crisis — a number it never came close to reaching even once.

Trump officials had considered their projections to be a break from that trend, writing last year that they were the first administration on record “to have experienced economic growth that meets or exceeds its own forecasts in each of its first two years in office.” That turned out to be wrong: In the middle of last year, the Commerce Department revised its accounting of the 2018 growth rate downward, to well below the rate Trump officials had forecast. Their predictions were similarly off in 2019.

Robust economic growth rates are not the only area where the administration’s renewed optimism appears in its latest budget. It has also revised down its estimate of the interest the federal government would pay to borrow money over the next decade, based largely on the assumption that the Fed, which began cutting rates in 2019, would raise them only modestly again over the next 10 years. The changes in rate assumptions reduce budget deficits by $1.5 trillion over the course of the decade, according to the administration’s projections.

Essentially, administration officials are contending that rising levels of debt in the United States will not drive up borrowing costs, as many conservative economists have long warned, at least for the next several years. They also believe, a rarity among economists, that a sustained stretch of 3 percent growth would not push the Fed to raise interest rates.

As a result, the administration sees federal debt held by the public — the national debt, essentially — declining from 79 percent of the overall economy this year to 66 percent in 2030. The budget office sees it rising, to 98 percent, a level not reached since 1946.

In order to justify that optimism, administration officials are contending that their overly optimistic growth forecasts of the past were a fluke of circumstance.

Mr. Trump’s first budget, in the spring of 2017, predicted growth of 2.3 percent that year using the administration’s preferred measure — the change in the size of the economy from the fourth quarter of the preceding year. It was a mild undershoot; growth actually hit 2.5 percent.

The next two budgets predicted 3.1 percent growth for 2018 and 3.2 percent for 2019. Both were off, badly. Growth was 2.5 percent in 2018, from fourth quarter to fourth quarter, and 2.3 percent in 2019, according to the Commerce Department.

Officials on Sunday attributed a half-point of the missed forecast last year to the effects of American trade policy — specifically, uncertainty over resolution of trade talks with China and congressional approval of a new trade agreement with Canada and Mexico. They said those uncertainties were now resolved and that growth would accelerate accordingly.

The senior administration official also said that a General Motors strike, aerospace giant Boeing’s struggles with its 737 Max aircraft and flooding in the Midwest had reduced growth by an additional three tenths of a percent last year.

Mr. Trump has long asserted that his push to negotiate with the Chinese and reopen North American trade talks were helping the economy. In the 2016 campaign, his advisers said that tariffs on Chinese imports — even more aggressive levies than what Mr. Trump ultimately imposed on Beijing — would increase growth, by pushing multinational companies to invest in the United States instead of China.

Such an investment wave never materialized. Capital spending growth turned negative for the last three quarters of 2019. Many forecasters believe that decline was trade-related; the budget office, among others, is predicting a bounce-back in investment growth this year. But those forecasters also see growth slowing, over all, as the stimulus fades from Mr. Trump’s deficit-swelling tax cuts in 2017 and spending increases he has signed each year in office.

Partly as a result of those measures, and the administration’s inability to interest Congress in any of its most aggressive proposals for cuts, the federal budget deficit was nearly twice as large last year as the administration projected in its first budget: It topped $1 trillion last year. The Congressional Budget Office predicts it will continue to grow, hitting $1.3 trillion in 2025 as growth slows to 1.5 percent.

For that same year, the new Trump budget predicts the deficit will be less than half the size — and that growth will be just under 3 percent.