President-elect Donald Trump is not inheriting a rock-solid economy on Jan. 20. Far from it.
The Congressional Budget Office’s (CBO) newly issued economic forecast anticipates the country’s economic growth rate will fall below 2% next year and remain below 2% for the foreseeable future. By comparison, the U.S. economy grew an average of 3.5% per year between 1947 and 2000 — averaging 4.3% as recently as 1996 to 2000.
In a nearly $30-trillion economy, even small growth-rate differentials matter.
Moreover, as the U.S. economy slows, CBO anticipates a significant downturn in job creation. The U.S. economy added an average of 185,000 jobs each month in 2024. CBO expects net job creation will plummet 51 percent next year to just 90,000 per month!
By 2027, CBO anticipates net monthly job creation will have collapsed by 74 percent to a net of just 46,000 per month, placing modest upward pressure on the unemployment rate.
Fortunately, the incoming president, unlike the outgoing president, understands the problem and is poised to enact policies explicitly designed to “reignite explosive growth.”
Economic growth occurs when a country is committed to free markets, limited government, sound money, and legal protections.
Economic growth occurs when a country’s labor force grows and is given the training and tools to be increasingly productive. That progress largely reflects the growth of a country’s potential labor supply, the degree to which potential workers are enticed into the labor force, and the productivity of that force.
Admittedly, labor force growth is partly a function of demographics. But public policy matters as well. President Joe Biden’s so-called American Rescue Plan Act of 2021, with its generous, refundable benefits for non-work, for example, discouraged labor force participation and hampered economic growth.
Unfortunately, CBO expects the U.S. labor force will grow very slowly for the foreseeable future — averaging 0.6 percent per year from 2025-34. CBO also anticipates a continuation of what the St. Louis Federal Reserve identified as a “prolonged productivity slowdown.”
While the Biden administration’s policies were all but tailored to hamper economic growth, Trump’s unbridled commitment to low taxes, deregulation, the rule of law, and energy development promises to rejuvenate the U.S. economy.
Consider the potential impact of Trump’s policies on labor force growth and productivity.
According to CBO’s interactive online model, a 0.5 percentage point increase in the labor force growth rate (relative to current projections) starting next year would add $4.3 trillion (in inflation-adjusted 2017 dollars) to cumulative GDP over ten years. That, according to the model, would reduce the ten-year federal budget deficit by $621 billion. That is not nearly enough to balance the budget, but it certainly would help.
Meanwhile, CBO estimates productivity will grow roughly 1.1% each year for the foreseeable future. That’s utterly pathetic considering that, from 1988 to 2023, productivity growth averaged 2 percent.
Raising the projected productivity growth rate 0.5 percentage points to 1.6% would boost cumulative GDP by $8.9 trillion (in inflation-adjusted 2017 dollars) over ten years. That, in turn, would reduce the ten-year federal budget deficit by $1.34 trillion.
How does one raise the country’s productivity growth rate? That is a good question without a clear answer. But reversing the Biden administration’s regulatory onslaught is a good place to start.
As of Dec. 13, 2024, the Biden administration had imposed federal regulations at a cost of $1.7 trillion. By comparison, at that point in the first Trump administration, federal regulators had imposed regulations totaling $38 billion — only 2.2% as costly as the regulations imposed by the Biden administration.
Another good place to start would be to extend and expand the Tax Cuts & Jobs Act. According to the nonpartisan Tax Foundation, implementing Trump’s proposed 15% corporate tax rate, for example, would boost GDP by $952 billion over ten years.
Trump is inheriting a weak economy. His commitment to low taxes, deregulation, the rule of law and energy development, however, promises to revive economic growth and save the country from an otherwise bleak future.
James Carter is a Principal with Navigators Global, LLC. He previously headed President-elect Donald Trump’s tax team during the 2016-17 transition and served as a Deputy Assistant Secretary of the Treasury for President George W. Bush.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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