Republican Presidential candidate Donald Trump announced significant revisions to his tax plan that would reduce its cost by about half, a change CRFB president Maya MacGuineas described as "moving in the right direction."

Unfortunately, to pay for his plan, Trump relies largely on unrealistic levels of economic growth, while ruling out changes to large portions of the budget to pay for his tax plan.

Trump's campaign estimates the new tax plan will cost $4.4 trillion, about half of the $9.25 trillion that we had estimated his old plan would cost. The new plan would be paid for in part with reductions in non-defense spending but mostly by increasing economic growth to 3.5 percent annually. This rate of economic growth is likely unachievable, and unfortunately Trump has taken many alternative offsets off the table that he could use to make up the difference.

Trump Would Rely On, Not Just Aspire Toward, Unachievable Levels of Growth

In his speech, Donald Trump proposed to offset 80 percent of his $4.4 trillion tax plan with faster economic growth. The campaign's numbers assume average annual real growth will be about 75% higher than projected (3.5 percent versus 2 percent annually), and Trump himself argued his plans would double real growth (to 4 percent instead of 2 percent annually). As we've explained before, neither is likely to be achievable in the context of an aging population.

Currently, the Congressional Budget Office (CBO) projects that real (inflation-adjusted) growth will average 2.0 percent over the next decade. The Blue Chip projection, an average of more than 50 independent macroeconomic forecasts with varying methods and assumptions, projects 2.1 percent growth.

The last time the United States had ten years of sustained 4 percent growth was in the late 1960s through early 1970s, and the last time it had sustained 3.5 percent growth was during the technological boom of the 1990s.

Importantly, both those time periods benefited from more favorable demographics, with the baby boomers entering the workforce and reaching their most productive work years. By comparison, today the baby boomers are entering retirement, which will slow the growth of the labor force and suggests future growth is likely to be about a percentage point lower than it has been historically.

With a much slower growing labor force, the way to achieve 3.5 percent annual growth would be to increase projected productivity growth by nearly 150%, from 1.1 percent to about 2.6 percent per year. This level of productivity growth has not been sustained over any decade in modern history.

To be sure, smart tax, regulatory, and energy reforms can help to boost growth. But most studies estimate the impact to be relatively limited compared to the boost Trump expects to see. And importantly, policies which increase the debt are actually likely to slow economic growth over the longer term.

The bottom line is that regardless of who is president, the economy is unlikely to grow by 3.5 or 4 percent annually for any extended period of time. It is useful to aspire to these high levels of growth: pro-growth reforms can reduce deficits, increase wages, and most importantly improve people's lives. But counting on this growth in order to keep debt from rising even faster than its current unsustainable path would be a costly mistake.

Trump Would Take Two-Thirds of the Budget Off the Table

Assuming economic growth doesn't materialize, Trump's new tax plan is now in theory small enough to be paid for with very aggressive reductions in spending.

Unfortunately, Donald Trump appears to have taken most of available reductions off the table by saying in a recent campaign fact sheet that remaining costs (emphasis added) "will be offset by minor changes in the current trajectory of spending for federal agency operations, excluding Defense, Veterans, Social Security and Medicare." Although this may only apply to the new tax offsets (not his entire agenda), it is consistent with his previous statements that he would not reduce Social Security or Medicare (beyond a tiny amount of fraud), and increase spending on defense and veterans.

Although Trump has previously ruled out changes to Social Security and Medicare, this is the first time he's been explicit on all of these categories. Of the current budget projections, the exempted categories make up 64 percent of the budget.

Ruling out changes to two thirds of the budget makes it hard enough to pay for a multi-trillion tax plan, but the plans Trump has put forward to date actually makes it even more difficult. For example, Trump has also proposed to increase defense spending by $450 billion over a decade, expand veterans benefits (we estimate a $500 billion cost), and shrink other parts of the budget by repealing "Obamacare," trimming unauthorized spending and improper payments, and block granting Medicaid.

After taking his proposals into account, only 31 percent of the budget is available to finance his tax cuts (note this excludes the effect of Trump's new Penny Plan, which we estimated would save $630 billion and is already being used to pay for the tax plan).

It is possible that these exemptions apply only to the specifics of Trump's Penny Plan and not to areas the campaign won't touch more broadly. But if they do apply more broadly, it could prove impossible for Trump to pay for his tax plan, let alone reduce projected deficits.

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During his campaign, Trump has vowed not to touch the two largest government programs, Social Security and Medicare, which together are responsible for almost half of spending growth over the next decade. He has promised to increase spending in two more large categories, defense and veterans. These exemptions and expansions make it difficult, if not impossible, to allow for the spending cuts needed to finance his tax cuts and put the debt back on a sustainable path. The level of economic growth that the campaign is relying on is an admirable goal but likely not possible to achieve in practice and shouldn't be relied upon.

For both of these reasons, the likelihood is very high that his proposals still add substantially to the debt. In light of this reality, we hope Donald Trump makes further improvements to his tax plans and reconsiders his plans to exempt the largest federal programs from any change.