Rosy White House tax cut fore­cast clashes with in­de­pen­dent an­a­lysts

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WASH­ING­TON: The White House pro­moted pres­i­dent Don­ald Trump’s tax cut plan last Fri­day with a fore­cast of faster US eco­nomic ex­pan­sion and wage growth, as in­de­pen­dent an­a­lysts said the plan would swell the bud­get deficit and pro­vide lit­tle spark to the econ­omy.

The ri­val pro­jec­tions re­flected the many un­knowns swirling around the plan, ex­pected to be un­veiled in leg­isla­tive form on Wed­nes­day. Repub­li­cans were still un­de­cided on some of the hard­est parts, such as how to pay for the costly cuts pro­posed.

Weeks and pos­si­bly months of de­bate lie ahead for a project that Trump promised to tackle in his 2016 elec­tion cam­paign. In Septem­ber, he un­veiled a rough frame­work for cut­ting taxes. Now he wants Congress to ap­prove a bill, which would mark his first ma­jor leg­isla­tive vic­tory, be­fore the end of the year.

The Trump plan for tax cuts of the sort nor­mally re­served for times of eco­nomic re­ces­sion is tak­ing shape in Congress amid signs the econ­omy is al­ready grow­ing briskly.

Gross do­mes­tic prod­uct in­creased at a 3% an­nual rate in the Ju­lySeptem­ber pe­riod, sup­ported by strong busi­ness spend­ing on equip­ment, the Com­merce Depart­ment said last Fri­day.

The eco­nomic re­cov­ery be­gun un­der for­mer pres­i­dent Barack Obama after the 2007-2009 re­ces­sion is in its eighth year and show­ing lit­tle signs of fa­tigue amid a tight­en­ing la­bor mar­ket.

“It’s hard to say that we need to have tax cuts at the in­di­vid­ual level ... you don’t need to pro­vide fur­ther fis­cal stim­u­lus when the econ­omy is al­ready strong,” said Bernard Bau­mohl, chief global economist at the Eco­nomic Out­look Group in Princeton, New Jersey.

Faced with im­prov­ing eco­nomic prospects, Repub­li­cans have shifted their rhetoric on tax cuts away from get­ting the econ­omy mov­ing again to keep­ing it on an ex­pan­sion track.

An anal­y­sis re­leased by White House eco­nomic ad­viser Kevin

Has­sett said slash­ing the top fed­eral cor­po­rate tax rate and let­ting busi­nesses write off the full cost of most cap­i­tal in­vest­ments im­me­di­ately, as pro­posed in the plan, would bring faster growth and higher wages.

Has­sett’s pro­jec­tions en­vi­sioned a 3% to 5% in­crease in GDP that, over 10 years, could rep­re­sent an ad­di­tional US$700bil to US$1.2 tril­lion in eco­nomic out­put.

But the Tax Pol­icy Cen­tre, a non-profit Wash­ing­ton think tank, re­leased an anal­y­sis that con­cluded the Trump tax plan would not pro­duce a sig­nif­i­cant, per­ma­nent eco­nomic boost.

The group said the plan would re­duce fed­eral tax rev­enue by roughly US$2.4 tril­lion over the next decade and by over US$3 tril­lion in the decade after that, adding sig­nif­i­cantly to a US na­tional debt that al­ready ex­ceeds US$20.4 tril­lion.

The cen­tre said Trump’s tax cuts would drive new ac­tiv­ity at first, but that the im­pact would be blunted in later years by ris­ing deficits, forc­ing more fed­eral bor­row­ing to fi­nance the tax cuts and driv­ing up bor­row­ing costs for the pri­vate sec­tor.

Has­sett told re­porters he does not ex­pect tax re­form to add sig­nif­i­cantly to the deficit. But he conceded that it would be­come “a big neg­a­tive” if eco­nomic growth failed to ma­te­ri­alise and the debt level soared.

The frame­work of Trump’s plan un­veiled last month called for re­duc­ing the cor­po­rate tax rate to 20% from 35%, the small busi­ness rate to 25% from up to 39.6% and the top in­di­vid­ual rate to 35% from 39.6%.

It also called specif­i­cally for re­peal­ing the es­tate tax on in­her­i­tances and the al­ter­na­tive min­i­mum tax, both of which are typ­i­cally paid by the coun­try’s high­est-in­come earn­ers.

Less clear were the plan’s pro­pos­als to re­duce the num­ber of tax brack­ets, en­hance the child tax credit and pos­si­bly put new lim­its on pop­u­lar 401(k) re­tire­ment pen­sion plans.

Be­cause de­tails of the un­fin­ished tax leg­is­la­tion are un­known, its eco­nomic im­pact is un­clear, said Omer Eis­ner, chief mar­ket an­a­lyst at Com­mon­wealth For­eign Ex­change in Wash­ing­ton.

Hours after the Com­merce Depart­ment re­ported stronger-than-ex­pected third quar­ter US eco­nomic growth of 3%. Has­sett said the data did not un­der­cut the need for tax cuts.

He said eco­nomic ex­pan­sion and stronger stock mar­ket per­for­mance could be un­der­mined if the Repub­li­can-con­trolled Congress fails to en­act the tax cuts.

“Firms are op­ti­mistic both be­cause of reg­u­la­tory re­form but also be­cause they ex­pect cor­po­rate tax re­form and over­all tax re­form,” Has­sett said.

“The thing that I’m wor­ried about is that if those ex­pec­ta­tions prove to be in­cor­rect, then I would ex­pect busi­ness cap­i­tal spend­ing to go back to a dis­ap­point­ing path and eq­uity mar­kets to de­cline as well.” Kevin Brady, chair­man of the US House of Rep­re­sen­ta­tives tax com­mit­tee, said progress was be­ing made to­ward sat­is­fy­ing

Repub­li­cans who have held back sup­port for the tax plan be­cause it could end a de­duc­tion for state and lo­cal taxes. ”I’m hope­ful ... we can find a good solution for them,” Brady said. — Reuters

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