Macroscope | Trump’s promised tax cuts could prove less than ‘tremendous’ for its national debt
The lurking reality is that over the next decade it is estimated the proposed tax plan will leave the US economy US$1 trillion worse off
“People are going to be very, very happy. They’re going to get tremendous, tremendous tax cuts and tax relief and that is what this country needs,” said US President Donald Trump on Saturday.
But the tax plan may actually not be what the United States really needs. In time, it could actually make matters worse.
Of course in coming months, the novelty of Washington actually managing to pass a package of tax cuts and reforms could well prompt markets to bid up US assets, including the US dollar. Fear of Missing Out could prove a powerful psychological driver for market participants.
But the lurking reality is that over the next decade it is estimated the proposed tax plan will add another US$1 trillion to the US’ national debt.
That is not a figure being bandied about by Trump’s political opponents, but rather the view of the US Congress’ non-partisan Joint Commission on Taxation (JCT).
The JCT estimated on November 30, the positive impact of the tax changes on US gross domestic product (GDP) over the next decade could result in a higher tax take over the period of US$407 billion which would reduce the previously estimated US$1.414 trillion costs of the legislative package to just over US$1 trillion.
That is an extra US$1 trillion that Uncle Sam will then have to borrow in the market.