U.S. presidential candidate Trump stated that extending tax cut policies will stimulate investment and promote economic growth in the U.S.—this promise helped him win the election in November.
However, the latest analysis from the nonpartisan fiscal oversight organization 'Committee for a Responsible Federal Budget' (CRFB) warns that extending tax cuts set to expire next year would have almost no benefit for economic growth. This is an unsettling data point for Republicans. They view extending this costly legislation as a way to boost the economy, while many voters say this legislation has not served them.
Most of the upcoming measures will largely benefit individuals and families, including lowering income tax rates and expanding the child tax credit. While these measures are easily accepted by voters, economists are cautious about the scale of the economic benefits they may bring.
The business tax cuts signed during Trump's first term will not be renewed, despite his promise on Thursday to donors and business leaders gathered at the New York Stock Exchange that he would lower the corporate tax rate to 15%. However, this promise is seen as a potentially dangerous move, as voters and some Republicans are disdainful of providing more aid to large corporations.
The CRFB's findings are based on an assessment by the Congressional Budget Office (CBO), which had previously studied the results of not extending tax cuts. This nonpartisan agency found that allowing tax cuts to expire would significantly increase public revenue, reducing the cumulative fiscal deficit by $3.7 trillion over ten years.
These potential increases in revenue would mean less public borrowing, which would, in turn, stimulate private investment. According to the CBO's analysis, this would help offset the labor force reduction caused by the expiration of tax cut policies. The CBO stated, 'Overall, these two effects largely offset each other, resulting in very little change in GDP.'
This means that, in the view of the CRFB, extending tax cut policies will have a similar, moderate net impact on economic growth.
Other models, including those from the Tax Foundation and the Wharton School, show a small amount of positive economic feedback resulting from extending tax cut policies, but far from enough to cover the costs of extending the tax cuts.
Trump bragged that the 'Department of Government Efficiency' would significantly cut spending; this is a nonprofit organization managed by Elon Musk and entrepreneur Vivek Ramaswamy, aimed at proposing substantial savings in public spending. Moreover, Trump also mentioned imposing tariffs of 10% to 20% on all imported goods as an offset for tax cuts.
Extending the tax cuts is only part of Trump's fiscal agenda, which also includes plans for comprehensive reductions in other taxes, such as taxes on tips and overtime pay, as well as lowering corporate taxes.
Investors are closely monitoring any signs of fiscal pressure. Although Wall Street economists say that extending tax cut measures will benefit economic growth, they warn that other factors are also at play.
Stephen Jen, CEO of Eurizon SLJ Capital, stated, 'For Trump 2.0 and Congress, it will be crucial to supplement tax cuts with spending cuts. This is not just about tax cuts; it’s about streamlining government, which means reducing spending.'
David Seif, chief economist for developed markets at Nomura Securities, said this means that, given the deteriorating fiscal outlook, the room for further tax cuts is shrinking.
Article forwarded from: Jin Shi Data
