Source: Fortune
Summary
President Trump’s fiscal year 2027 budget assumes 3% annual economic growth, which the White House believes will increase tax revenue and reduce the national debt. However, Federal Reserve Chair Jerome Powell has expressed concerns about the “unsustainable” fiscal trajectory. Kent Smetters, faculty director of the Penn Wharton Budget Model, ran the numbers and found that the growth assumption may not deliver the expected benefits due to increased interest rates and government spending. The Congressional Budget Office and the Committee for a Responsible Federal Budget have also expressed skepticism about the budget’s projections. The budget proposes a $1.5 trillion defense funding request and cuts to non-defense discretionary spending.
Our Reading
The numbers tell one story.
The administration’s growth assumption is a key driver of the budget, but it may not be realistic. Kent Smetters’ analysis shows that the benefits of 3% growth may be offset by increased interest rates and government spending. The White House is essentially pairing an aggressive growth rate with lower interest rates and spending, which is unlikely. The budget’s proposal to cut non-defense discretionary spending by 10% in FY 2027 and 2% annually thereafter may not be enough to offset the costs of the defense funding request. The interest rate math embedded in the budget may be the number Congress pays closest attention to.
The administration is betting on a growth surge to fix the national debt, but the math is not on their side.
Author: Evan Null
