Key Takeaways:
– Trump’s re-election may lead to extended tax cuts and reduction in red tape to promote economic growth.
– The 2017 Tax Cuts and Jobs Act is set to expire in 2025. If extended, tax rates won’t spike, and economic output could increase in the long run.
– More business-friendly policies are expected from a second Trump term, encouraging innovation, investment, and productivity.
– Extending these policies might put severe strain on the national debt, requiring vital spending cuts to offset revenue loss.
During the last elections, voters went to the polls with a clear primary concern — the economy. Following Donald Trump’s comeback to the White House coupled with Republican gains in Congress, what implications will this have on the US economy? As a keen observer of the recent election, particularly on the economic agendas of the candidates, I’ve noted two critical areas where Trump’s second term could potentially boost the economy. However, there’s a vital financial cost that will need handling.
Keeping The 2017 Tax Law Alive
A major part of Trump’s economic strategy hangs on taxation. Notably, the Tax Cuts and Jobs Act of 2017, which Trump signed into law during his maiden year in office, is due to expire in 2025. Should these parts of the law crumble, a sigh-inducing tax hike of about $4 trillion deep into 2034 is looming on the horizon. This could directly impact households wrestling with the aftermath of high inflation, a factor that in part catalyzed Trump’s victory.
If individual income tax cuts were prolonged, marginal tax rates wouldn’t abruptly spike. Resultantly, economic output would relatively rise in the long run since lower taxes enhance demand for goods and services in the short term. Besides, lower tax rates motivate work, saving, and investment, thus encouraging more hours worked, additional capital, augmented labor productivity, and the birth of new businesses in the long term.
The 2017 law also made tax matters easier by doubling the standard deduction. Simultaneously, it urged fairness by enlarging the child tax credit and minimizing the number of taxpayers subject to the alternative minimum tax. A rise in these provisions would significantly heap a tax burden on the lower- and middle-income families.
Given that Trump was the signing authority of the 2017 law, it’s plausible that he will prolong it. With the support of a Republican Congress, successful extension is a great possibility. Many economists argue that such a move will spell good news for American households and the economy overall.
Curtailing More Regulations
Beyond taxation, Trump’s business-linked policies from his first term had a positive impact on innovation, investment, and productivity. Many of these policies are underpinnings of the 2017 tax law, and are likely to be stretched or renovated early into Trump’s second term. Furthermore, measures benefiting small businesses and those promoting modern equipment are up for renewal soon.
The small-business deduction notably bolstered employment by around 1.2 million jobs per year. Moreover, it’s pivotal in maintaining competitiveness between small and larger businesses. Allowing companies to fully account for the cost of equipment can stimulate an approximately 5% surge in economic output over the long term.
There’s also the challenge of dealing with research and development (R&D) expenditures. The 2017 tax law actually ballooned taxes for corporations by enforcing spreading these expenses over five years, unintentionally discouraging
investment. Trump’s plan of changing this to permit immediate expensing of all costs, including R&D, is expected to drive economic growth.
Trump’s first term was synonymous with a reduction in red tape, slashing excessive regulations, a feat beneficial to the economy.
However, all these benefits stand against a monumental caveat. Keeping tax cuts afloat will strain the national debt, which is already unsustainable. Balancing the books by offsetting revenue loss with cuts in spending is fundamental in preventing further debt increase. With Trump at the helm, an arduous yet essential journey of sustainable fiscal reform lies ahead.