Bloomberg: Trump's tax reform may not work

Donald Trump's tax initiatives are controversial, although he promises to stimulate the US economy through tax cuts, experts warn of their minimal effect, and the record budget deficit of $1.83 trillion calls into question the effectiveness of such measures. Writes UNN with reference to Bloomberg.

President-elect Donald Trump claims that extending tax cuts will spur investment and accelerate economic growth in the United States. However, according to the Committee for a Responsible Federal Budget (CRFB), these measures will have a minimal impact on the economy.

Most of the proposed tax incentives are aimed at households, such as income tax cuts and child tax credits, which are more focused on voters than on long-term economic growth. Economists believe that a more significant stimulus could be provided by supporting the corporate sector.

At the same time, there are no plans to extend the tax cuts for businesses provided for in the 2017 law. Despite Trump's promise to reduce the corporate rate to 15%, this step has drawn criticism even among Republicans.

According to the Congressional Budget Office, not extending the tax cuts will reduce the budget deficit by $3.7 trillion over 10 years and reduce government borrowing, which will have a positive impact on private investment.

“As a result, these two effects largely offset each other, which will lead to very little change in the gross domestic product,” the BOC noted.

According to the CRFB, extending the tax cuts would have only a moderate impact on economic growth. Other models, such as the Tax Foundation and the University of Pennsylvania's budget model, also predict a small positive effect that will not cover the cost of these rebates, estimated at $4.6 trillion over a decade. This puts additional pressure on lawmakers to find ways to cut spending.

President Trump announced a sharp reduction in government spending through the new Department of Government Efficiency, which will be headed by Elon Musk and Vivek Ramaswamy. He also proposed the introduction of import tariffs of 10-20% and 60% on Chinese goods as a compensatory mechanism for tax cuts.

The US budget deficit in 2024 will reach a record level since the Covid pandemic due to increased spending on social security, defense, and debt service. Last fiscal year, the deficit was $1.83 trillion, and in the first two months of this year it was $624 billion, which is equivalent to borrowing $10 billion daily.

“This is an impressive amount, especially when you consider the enormous challenges we face. If we are going to take fiscal responsibility seriously, we can start now,” said CRFB President Maya McGuineas.

Recall

US President-elect Donald Trump plans to issue more than 25 executive orders and directives on his first day in office, January 20. They will concern, among other things, immigration and energy.