Three Reasons Why Assuming Sustained 3% Growth is a Budget Gimmick
Last Updated February 5, 2025
This year, lawmakers face a series of critical budgetary decisions, including a government funding deadline, the debt ceiling, and how to deal with trillions of dollars of expiring tax policies at the end of the year.
With narrow majorities in both Houses of Congress, Republicans are expected to make use of budget reconciliation to advance key pieces of their agenda. Budget reconciliation is a powerful but complex process that provides for expedited consideration of certain legislation — including lowering the threshold for passage to a simple majority in the Senate, down from the usual 60 votes. A key initial step towards unlocking this special process is when the House and Senate pass a budget resolution that incorporates assumptions for economic growth and deficits over a 10-year period.
Reports have indicated that lawmakers may use an assumption of 3 percent economic growth as part of the process. Real (inflation-adjusted) growth in gross domestic product (GDP) of 3 percent would be significantly above other nonpartisan estimates, historically difficult to achieve, and have the effect of concealing $2 trillion or more in added deficits.
Here are three key reasons that assuming 3 percent growth is a fiscally irresponsible budget gimmick:
1) Sustained 3 percent growth is significantly above expectations of economists.
No current nonpartisan forecast assumes anything close to 3 percent growth over the next decade. Projections from public and private institutions, including the Congressional Budget Office (CBO), the Federal Reserve, and the consensus of the country’s top economic forecasters all conclude that annual GDP growth will average less than 2 percent per year over the next decade. In fact, even the most bullish analysts only project an average annual GDP growth of 2.2 percent over that period, topping out at 2.3 percent in 2027. While sustained 3 percent growth is an admirable goal, it is not a realistic expectation.
2) Based on history, sustained 3 percent economic growth for a decade would be unprecedented.
Over the past 25 years, real GDP growth has exceeded 3 percent just 4 times. Most of the periods of higher growth took place after recessions rather than during periods of economic stability.
3) The unlikely growth assumption produces an overly rosy revenue projection, artificially improving the outlook for the national debt.
Assuming 3 percent growth would have the effect of making deficits appear $2 trillion lower over the decade relative to CBO’s baseline projections. Such an assumption may make it easier on paper to achieve budgetary goals, but the end result will likely be higher-than-expected debt.
If lawmakers change nothing this year, the federal government is already on pace to add $22 trillion to deficits over the next decade — an unsustainable path that threatens the country’s economic future. Lawmakers should avoid budget gimmicks as they consider a range of fiscal deadlines this year, and instead take advantage of the wide range of spending and revenue options available to offset any cost that comes with policies they wish to extend or enact. The structural imbalance between spending and revenues demands real solutions, not wishful thinking.
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