ECONOMIC REPORT OF THE PRESIDENT

total factor productivity and therefore growth. (See Chapter 5 of the 2015
Report for a discussion of the economic benefits of business tax reform.)
Deficit reduction. CBO’s (2013b) analysis of the macroeconomic
effects of alternative budgetary paths estimates that a hypothetical $2
trillion in primary deficit reduction over 10 years raises the long-term
level of real GDP by 0.5 percent. This effect arises because lower Federal
deficits translate into higher national saving, lower interest rates and, in
turn, greater private investment. The Administration’s FY 2017 budget
proposal includes $2.9 trillion in primary deficit reduction relative to
the Administration’s plausible baseline. Results of CBO’s methodology
would raise the level of output in 2027 by 0.6 percent.
Other Policies. Numerous other policies—ranging from policies to
increase competition to increasing innovation or spurring green energy
development might also raise growth over time, but are not explicitly
modeled in the budget forecast.
(Note, to be consistent with previous Administration forecasts the
portion of growth due to the workforce effects of immigration reform
are not incorporated in the forecast or the underlying detail, for example
in Table 2.1. Excluding this component, the policies add 3 percent to the
level of output in 2027.)
nonfarm business sector. The two columns of Table 2-2 show the average
annual growth rate for each factor during a long period of history and over
the forecast horizon. The first column shows the long-run average growth
rates between the business-cycle peak of 1953 and the latest quarter available
when the forecast was finalized (2016:Q3). Many of these variables show
substantial fluctuations within business cycles, so that long-period growth
rates must be examined to uncover underlying trends. The second column
shows average projected growth rates between 2016:Q3 and 2027:Q4; that is,
the entire 11¼-year interval covered by the Administration forecast.
The population is projected to grow 1.0 percent a year, on average,
over the projection period (line 1, column 2), following the latest projection
from the Social Security Administration. Over this same period, the
labor force participation rate is projected to decline 0.4 percent a year (line
2, column 2). This projected decline in the labor force participation rate
primarily reflects a negative demographic trend deriving from the aging of
the baby-boom generation into retirement. During the next couple of years,
however, rising labor demand due to the continuing business-cycle recovery
is expected to offset some of this downward trend.
The employed share of the labor force—which is equal to one minus
the unemployment rate—is expected to remain roughly constant during the
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