In CBO’s (Congressional Budget Office) projections, the growth of real GDP exceeds the growth of real potential output over the next two years, putting upward pressure on inflation and interest rates. But during the 2020–2026 period, a number of factors dampen economic growth:
Higher interest rates and prices, slower growth in federal outlays, and the expiration of reductions in personal income tax rates. After 2026, economic growth
is projected to rise slightly, matching the growth rate of potential output by 2028.
Between 2018 and 2028, actual and potential real output alike are projected to expand at an average annual rate of 1.9 percent.
In June 2017, the CBO said GDP growth for 2018 would be just 2%. Now it figures growth will be 3.3% — a significant upward revision. It also boosted its forecast for 2019 from a meager 1.5% to a respectable 2.4%. The CBO now expects GDP to be $6.1 trillion bigger by 2027 than it did before the tax cuts.
The CBO report (pages 105-130) makes clear that this faster-growing economy will offset most of the costs of the Trump tax cuts.
In the appendix of the CBO report, it shows that, before accounting for economic growth, the tax cuts Trump signed into law late last year would cut federal revenues by $1.69 trillion from 2018-2027. But it goes on to say that higher rate of GDP growth will produce $1.1 trillion in new revenues. In other words, 65% of the tax cuts are paid for by extra economic growth.
Faster growth will also reduce federal entitlement spending keyed to the economy — unemployment insurance, food stamps, welfare and the like — by $150 billion, the CBO says.
If you subtract that from the cost of the tax cuts, the net cost drops to $440 billion.
Real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the first quarter of 2018, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.9 percent. The United States economy, at first estimate, grew by 2.9 percent, year-over-year, in the first quarter of 2018.
The year-over-year numbers are better than the quarter-over-quarter figures, annualized as the quarter over quarter pick up seasonal factors not smoothed out and tend to distort the overall progress of the economy.
The first quarter tends to be weaker. GDP Growth at 3-4% through 2019 with decent growth thereafter could almost entirely offset the cost of the tax cuts.
Current-dollar GDP increased 4.3 percent, or $211.2 billion, in the first quarter to a level of $19.97