Donald Trump has revealed that his new tax cut proposal will be announced in November.
The president added that he would meet with Republican Representative the chairman of the tax-writing House Ways and Means Committee, Kevin Brady to discuss the proposal.
He said in a speech: “We’re going to be submitting additional tax cuts sometime prior to November”.
No additional details were given, however.
To put things into perspective, Trump signed a $1.5 trillion tax cut back in December 2017, which was seen as him delivering on his pledges to cut taxes during his presidency.
Consequently, the economy has seen an optimistic turnaround in a Republican-led America, who are to face voters in November with unemployment figures falling to a near seventeen-and-a-half-year low.
It could be that further fiscal stimulus will help the Fed normalize interest rates by delivering on their pledges to cut taxes.
However, while it’s laudable that Trump has taken the initiative to attempt to push the American economy forward – as was stated in his run-up to a historic Republican victory – it would be useful to know whether these proposals will be corporate or income tax cuts, among other details.
It looks as though Trump is eager to demonstrate his faith in the strength of the U.S. economy, which is already expected to grow by about 3 per cent this year, partly thanks to his highly welcomed December 2017 tax cuts.
And while critics might call this a boisterous move that might need to be toned down due to the possibility of increased inflationary pressure, there is a good case to be made for Trump’s decision.
Today, America finds itself in unusual economic conditions, where unemployment is at a 3.9 per cent cyclical low with modest wage growth and inflation at 2.5 per cent year-on-year in April.
This economic climate of weak inflation is in some sense hindering the Federal Reserve’s goal of normalizing interest rates – the marker of which would be levels similar to those seen in the early 1990s and early 2000s.
If things are to fall into place through carefully crafted tax cuts, the proposals will boost demand and in turn, inflation, thus creating a robust environment for the Fed to accelerate its rate hikes.
In addition, an uptick in the budget deficit to GDP – which currently stands at 2.8 per cent – is affordable when considering the continuing low Treasury yields by historic standards.
Indeed, both regional and global investors have consistently demonstrated substantial appetite for U.S. debt, which arguably tilts the chessboard in Mr. Trump’s favor.
That said, it’s unclear what the outcome will be if the proposals were implemented, as their success depends on whether the economy can keep up with growth.
Still, since we have yet to see the details of said proposals, it’s certainly useful to keep a close watch on developments moving forward.
Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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