Just
recently Trump outlined a plan to make some major tax cuts. The main basis of
the bill calls for the lowering of the tax rate for corporations to about 20%
from the 35% it’s at right now. Another goal of the bill is to help families by
letting them deduct about double from their taxes than they were able to
before. These tax cuts are forecasted to raise the U.S. growth rate by 2.5% while
adding 0.3% to the global growth just next year. This all seems perfect in
theory but there is a large issue that could counterbalance the potential gains
that we would see from these tax cuts. The problem is that Trump has been talking
about imposing new tariffs on both China and Mexico witch could hinder the
global growth we would see from the tax cuts. Tariffs are usually put in place
to protect domestic industries from foreign competition. In Trumps case this
may be his motive but it would hurt his other plan that he is trying to put
into place. When looking at the terms of trade of all the countries we find
that in the long run it will decline. The reason being is because the other countries
will be more likely to retaliate and create import tariffs of their own. When
we look back at the tax cuts that Trump is imposing I believe that this will prominently
boost the United States growth rate but when it comes to global growth rate there
will be little to no change. The economy globally and domestically could use a
boost and we will find out soon enough if these tax cuts help keep it moving in
the right direction.
For more information visit:
http://www.foxbusiness.com/markets/2017/01/10/heres-how-trumps-tax-cuts-could-affect-u-s-global-economic-growth.html
I agree, providing more relief through tax cuts is a good idea to put more money directly back into the economy via spending, especially for the middle class, which would theoretically lead to more supply due to more demand and would thus lead to more hiring (increased production). The implementation of a new tariff could be detrimental also because it could drive up prices, both from the exporting countries and for domestic producers, that would find little incentive for keeping prices low.
ReplyDeleteI think that the most pressing issue involving the tax cuts is how to balance the budget to sustain the loss of government revenue. A majority of Republicans and Democrats agree that the Federal budget has been, is, and will continue to be a problem. The deficit continues to grow as the government spends more then they can take in. I personally agree that cutting the corporate tax rate is a good idea but I do not think that it will lead to the amount of growth or re-patronization of company assets. Uzbekistan has the lowest corporate tax rate in the world and it is not over growing at accelerated rates. The current U.S. rate is much too high though. I also agree that the tax code is too complicated and should be revised into something that is simpler.
ReplyDeleteThe first reactions for rating agencies is that the tax cut will actually hurt the lowest income families. With that said, the plan that was presented was little more then framework and the process of legislation and implementation is a way off.
I think it will be interesting to see how this effects the growing trend of corporations shifting their corporate operations to other nations. This had been a problem in the past, as corporations such as Burger King have utilized a tax inversion in order to avoid paying US corporate tax rates. These moves are very small in the overall tax revenue, but like former Senator Dirksen supposedly said, "A billion here, a billion there, pretty soon, you're talking real money." The problem with tax cuts, as Catherine notes, is that it will cause the deficit to continue to grow. The deficit in itself is concerning, but these tax cuts remain a small problem if just taken at this level. It seems the Trump administration, much like Reagan, is using the Laffer curve to justify tax cuts. This combined with an increase in spending on military, and cuts to social policy spending, seems like a Reaganomics economic policy for the Trump administration. It will be interesting to see if this will pass or not, and I suppose it will be interesting to see the effect it has on the income gap, as well as the overall economy.
ReplyDeleteThere are many trumps decisions which are objected by ,many people all over the World China is one of the industrial hub of the World where low cost of production makes China lowering the opportunity cost, China has a comparative advantage in most of the good especially electronics. Countries trade with China and avail benefits.
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