White House chief economist Kevin Hassett on Tuesday dismissed worries that a recession might hit next year, arguing that lower corporate tax rates have boosted business investment and productivity that will keep the U.S. economy humming.
The Council of Economic Advisers, a three-member panel that Hassett chairs, estimated in its annual report that U.S. gross domestic product will grow at or above 3 percent for the next five years.
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That prediction is at odds with those of many economists, who have warned that the stimulus from the tax cuts will fade by 2020 — an election year when a weak economy could hurt President Donald Trump’s chances of winning a second term.
“Some folks have said, ‘Oh, sure, we did have 3 percent growth [in 2018], but that was a sugar high,’” Hassett said on a call with reporters. “Our view is that’s really not a sugar high at all. A sugar high would be, ‘We spent a lot of money on Twinkies, and now we’re sorry we ate all those Twinkies, and we don’t have any money left.’”
“But this is — we actually cut taxes to encourage people to build new factories, and we got the new factories last year,” he said. “We’re going to get more new factories this year, but we’re also going to get the output from the factories we built last year as they turn them on.”
Fifteen chief economists from major North American banks forecast in January that growth would slow to 2.1 percent this year. By the same measure, the U.S. economy expanded by 3.1 percent in 2018. The Federal Reserve has also predicted slower growth in 2019, and it will publish its newest projections on Wednesday.
Hassett acknowledged risks that could threaten the White House’s forecast, including the potential for global growth to slow more significantly, particularly in Europe, where he cited uncertainty about Britain’s departure from the European Union.
Other “risks” include the potential for Democratic policies such as “Medicare for All” and a top marginal income tax rate of 70 percent, the report says.
“But I think there’s ample room for optimism,” Hassett said. “As we run the numbers, there are so many positives that are basically the residual effect of going from being the highest-taxed place on Earth to being an attractive place.”
“That’s a fundamental shift in the economy and the economic outlook, and it’s not one that reaches its complete fruition after one year,” he added. “The idea we would have a recession next year — it’s certainly not impossible, recessions very often happen and few people see them coming — but it would be very unusual for such a thing to happen given the massive amount of capital spending and new capacity that’s being brought online.”
The report also said the U.S. economy saved $3.2 billion in regulatory costs, thanks to deregulatory efforts by the Trump administration intended to spur more business and consumer activities.