What's Missing from the White House's Budget

SMITH BRAIN TRUST – When federal budgets are released from the White House Office of Management and Budget, there are typically a few holes here and there, some missing details, and perhaps some wishful thinking since the budget assumes that everything the president proposes will become enacted.

That's never the case, meaning that the budget by design is a statement of intent rather than a legislative blueprint. The budget that emerged from President Donald Trump's administration this week, however, is notable for including more wishful thinking than the norm and leaving more details than most to be filled in, says Phillip L. Swagel, a senior fellow at the University of Maryland Robert H. Smith School's Center for Financial Policy and a professor of international economic policy at the School of Public Policy.

Experts this week have scrutinized those holes, notably the uncertain way in which the White House believes it will attain 3 percent growth in the nation's gross domestic product, a rate that significantly outpaces most economists' projections. GDP is considered the broadest measure of the health of the economy and represents the market value of the goods and services produced by the economy.

The budget, presented Tuesday by Office of Management and Budget Director Mick Mulvaney, doesn't explain how it will reach that 3 percent target, but, Swagel says, there are a few broadly accepted mechanisms capable of driving higher growth.

Regulatory reform is one of them, and the administration has begun working toward that. "I give them a check mark for that," Swagel says.

Pro-growth tax reform is another. "They have not put a proposal forward for that. They have this one-pager, which doesn't really give us a sense of what they want to do," he says, referring to the single page of bullet points the administration released last month.

More trade agreements could boost productivity, a key factor in economic expansion, Swagel notes. But that's decidedly not on Trump's agenda.

Immigration reform aimed at boosting the skilled labor force in the U.S. could also help fuel growth by increasing output. "It seems like they are going in the opposite direction on that one," he says.

"I can see how to get to 3 percent growth, but the administration has just not provided that roadmap," Swagel says.

Three percent is the historical average expansion rate on GDP, but with a marked slowing in the growth of labor, capital and productivity, plus a tightening in monetary policy, economists now consider that rate difficult to reach. The U.S. economy grew 1.6 percent last year.

"The administration has given us the idea that we can grow at 3 percent," Swagel says. "They just haven't said how."

Mulvaney, for his part, has staunchly defended the administration's growth projections. He says the economy will generate $2.1 trillion in additional revenue in the next 10 years, gleaned from better economic growth that's triggered by tax cuts that haven't yet been proposed, let alone approved by Congress. The White House's plan is to have the tax cuts basically pay for themselves with the added revenue they create. But then, the budget also counts that revenue toward paying down the deficit, and this week that had economists accusing the White House of double-counting its revenue.

"Academically, I think it does illustrate how difficult the challenge is," Swagel says. And the budget also reveals how little is known about the Trump administration's overall fiscal policy plans.

"All budgets make assumptions," Swagel says, based on the policy plans of the sitting president. And no president gets everything he wants, even with a majority in the House and Senate.

"What's notable in this budget is the gap between the growth assumption and the level of detail in the policies," Swagel says. "Three percent growth is possible. It's just that the administration hasn't provided enough detail about how they are going to try to achieve it. I'll look forward to having them fill in the details."