The CRFB referred us to Table A-1 of the nonpartisan Congressional Budget Office’s April 2018 Budget and Economic Outlook, which projects the impact of economic revisions since June 2017 — including effects of newly enacted legislation and updated economic data. The CBO projected that the economic changes will result in an additional $92 billion in all payroll tax revenues, which includes Medicare and Society Security, over 10 years.
More than half of the additional economic growth was the result of recently enacted legislation, specifically the 2017 tax act, the 2018 budget act and the fiscal year 2018 appropriations law, the CBO report explained. “Updated data for key measures from the national income and product accounts (NIPAs) also led to economic revisions. (The NIPAs, which are produced by the Bureau of Economic Analysis, track components of the nation’s economic output and income that CBO uses in its economic analyses,)” CBO said.
So why did the president say Medicare will be $700 billion stronger over 10 years because of economic growth?
The White House told us that the president was referring to Medicare and Social Security, not just Medicare. It said the administration’s policies will result in “extra economic growth that is on track to add more than $700 billion to Medicare and Social Security revenues.”
More precisely, the White House estimates that economic growth will generate an additional $858 billion more in payroll taxes over 11 years, from 2018 to 2028, compared with CBO projections.
The White House took the administration’s nominal gross domestic product projections for each year from 2018 to 2028 (Table 1 of the White House’s Mid-Session Review of its fiscal 2019 budget proposal) and applied the CBO’s payroll tax revenue as a share of GDP for each year (Table 4-1 of CBO’s Budget and Economic Outlook) to estimate total payroll tax revenues for those 11 years. It then subtracted CBO’s payroll tax revenue projections from its own and got $858 billion in additional payroll tax revenue due to growth from 2018 to 2028.
But there are three problems with that logic, beginning with the fact that it doesn’t support what the president said.
First, the president said he strengthened Medicare by $700 billion over 10 years, but the White House gave us the impact of economic growth on all payroll revenues — including Social Security, which is the largest.
We found that the White House (see Table S-4) estimates $129 billion more in Medicare tax revenue than CBO (see tab 4).
So, Trump is wrong about the impact of economic growth on Medicare even by his administration’s own numbers.
Second, the White House projects higher payroll tax revenues based on sustained economic growth through 2028. It projects real GDP will grow at an average annual rate of nearly 3 percent for the next decade — which is about a percentage point higher than most economic forecasters predict.
In August, CBO projected real GDP will grow 3.1 percent this year and 2.4 percent next year, but over the 10-year budget period, from 2018 to 2028, CBO projects an average annual growth rate of 1.9 percent.
The consensus among economic forecasters is that tax cuts and increased federal spending will stimulate the economy, but only in the short term, according to the CRFB.
For example, the most recent median forecast of the Federal Reserve Board members and Federal Reserve Bank presidents, released June 13, is for 2.8 percent in 2018, 2.4 percent in 2019 and 2.0 percent in 2020. But the “longer-run” median forecast is 1.8 percent.
Third, although Trump says “we pay for things through growth,” the additional payroll tax revenue generated by economic growth — even at the level projected by the White House — is a small fraction of the cost of Social Security and Medicare.
The administration’s proposed budget for mandatory programs (Table S-4) shows that it expects to spend $8.75 trillion on Medicare from 2019 to 2028, but take in only $3.6 trillion in Medicare payroll taxes. As for Social Security, the administration expects to spend $13.66 trillion and take in only $11.6 trillion.
Budget experts say mandatory programs remain on track to consume an increasingly greater share of federal spending.
In its April report, CBO estimated that “spending for people age 65 or older in several large mandatory programs — Social Security, Medicare, Medicaid, and military and federal civilian retirement programs” — will increase from 38 percent of federal spending in 2018 to 45 percent in 2028. (That does not include federal spending on interest.)
Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, told us in an email: “There has been no major Social Security or Medicare legislation enacted, so the programs are essentially on the same path they were on before the President took office.”
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