Washington is running its largest peacetime budget deficit in American history. The national debt held by the public has leaped from 40 percent of the economy in 2008 to 100 percent today—on its way towards 250 percent of gross domestic product (GDP) within three decades. At that point, interest alone would consume two-thirds or more of all federal taxes. And yet, even as a nervous bond market is pushing up interest rates, President Donald Trump—who enacted $8 trillion in spending hikes and tax cuts in his first term—proposes doubling down with even more tax cuts and spending expansions.
How can Washington possibly pay for trillions more in promises on top of this unsustainable debt? According to Republicans in Washington, it's simple. Just grow the economy so fast that the resulting revenues will pay for it all.
Maintaining current productivity rates would bring a continuation of the 2 percent economic growth rates that have prevailed over the past 25 years. As explained in the next section, pushing sustained economic growth rates up to 3 percent—which is a much greater jump than it may seem—would require nearly doubling long-term productivity growth rates. Nevertheless, such bold assumptions have long been a staple of GOP budgets. Major Republican tax cuts in 1981, 2001, and 2017 were each accompanied by assurances of colossal economic booms that would bring enough tax revenue to pay for the policies.
