IS IT REALLY THAT TREMENDOUS? PART III

IS IT REALLY THAT TREMENDOUS? PART III

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Harsh Tiwari, Assistant Fiscal Policy Editor
 
This article is the final installment in a series of three analysing the American economy. As stated earlier, this series uses two sets of criteria to appraise the American economy under President Trump. The first two articles concentrated on hard economic data and economic indicators. This final article shall seek to appraise Trump’s economic and fiscal policies. The intent of this article shall be to complete the work started in the first article and provide a detailed and complete outlook on the American economy.
 
Trump’s economic policy seems to be Keynesian in spirit focused on government spending on public works. The greatest evidence of this is his $1 trillion infrastructure plan. However, a look at his deregulatory policies and massive proposed budget and tax cuts tells us that he is not a typical big-government Conservative but one who is Harsh Tiwari, Assistant Fiscal Policy Editor
 
This article is the final installment in a series of three analysing the American economy. As stated earlier, this series uses two sets of criteria to appraise the American economy under President Trump. The first two articles concentrated on hard economic data and economic indicators. This final article shall seek to appraise Trump’s economic and fiscal policies. The intent of this article shall be to complete the work started in the first article and provide a detailed and complete outlook on the American economy.
 
Trump’s economic policy seems to be Keynesian in spirit focused on government spending on public works. The greatest evidence of this is his $1 trillion infrastructure plan. However, a look at his deregulatory policies and massive proposed budget and tax cuts tells us that he is not a typical big-government Conservative but one who is Friedman-like in many ways.
 
The Infrastructure Plan
 
Trump's infrastructure plan is by far a laudable economic policy. A $1 trillion infrastructure plan will create durable assets for the economy, provide jobs, and increase productivity greatly. Moreover, as I have pointed out in an earlier article, the state of American infrastructure is in shambles and in great need of repair. 
 
Three potential problems associated with the infrastructure plan include inflation, the Fed rate hike and its impact on the national debt. It is known that a sudden spike in infrastructure investment leads to higher consumer spending which can cause inflation. However, inflation is at 0.2% and should not be a worry. In fact, a spurt in inflation due to infrastructure spending will be welcome for further economic growth. As far as debt is concerned, firstly, Trump’s proposed tax credits to companies will greatly ease the debt burden on the federal government. Secondly, job creation, economic growth, and asset creation as a result of infrastructure investment would provide great returns in the medium and long term.The only real problem seems to be the Fed rate hike of 25 basis points. This is because of Trump’s plan to provide tax credits for infrastructure investment to private companies. A 25 basis points hike in the bank rate would potentially deter companies from taking loans and using tax credits for investment in infrastructure.
 
Deregulation
 
Trump’s aim of deregulating the many legal frameworks that hinder economic growth is worthy of appreciation. However, his policies have not made much progress in implementing said aim. There are only two notable achievements in this regard. The first is the signing of an Executive Order which requires regulators to roll back two older regulations for every new regulation they introduce. While this will eventually lead to a reduction of regulatory frameworks in general, it does not make substantive progress in removing specific regulations. 

The second notable achievement, although legislative and accreditable to House Republicans to a large extent, is the ongoing effort to pass the Financial Choice Act which has been passed by the House and is awaiting Senate action. The Financial Choice Act repeals many provisions of the Dodd Frank Act that was adopted after the Great Recession to ensure financial stability using a regulatory framework. However, as Kimo Gendall, Jr. Editor of TMR points out,” the Act [has] several extremely limiting, or outright irrelevant regulations” and its repeal is therefore not unwelcome. Yet, this step should evoke only cautious optimism. The replacement of the Dodd Frank Act should not allow for aggressive and dangerous financial risks. 
 
Budget and Tax Plan
 
Trump’s proposed budget includes across-the-board cuts. According to Reuters, “Trump wants lawmakers to cut at least $610 billion from Medicaid and more than $192 billion from food stamps over a decade. He seeks to balance the budget within 10 years.” Trump’s budget seeks to defund many programs like Planned Parenthood and the National Endowment for Arts whilst making large spending cuts to education and the Environmental Protection Agency.
 
Trump's austere budget only wishes to increase defence spending and proposes a $ 1.6 billion down payment for the border wall with Mexico. It also seeks to raise money by selling half of the country's oil stockpile.
 
Trump’s budget makes many of the right cuts which are necessary to reduce wasteful expenditures and mitigate the growth of public debt. Many of the cuts will negatively impact welfare programmes but the recent growth of the accumulated national debt to around 106% of the United States’ annual GDP necessitates such tough measures, especially with the infrastructure plan on the cards.
 
Trump’s tax plan also proposes very many cuts to taxes. Firstly, it seeks to reduce tax brackets from the current seven to three. Secondly, it rolls back the Alternative Minimum Tax. Thirdly, the the tax plan seeks to eliminate the estate tax and the Affordable Care Act surcharge of 3.8% which was levied over the 20% capital gains tax. These measures are a step in the right direction as they seek to reduce complications in tax policy, ease taxation compliance, and stimulate investment. However, the tax plan offers a very dubious explanation as to how it will tackle revenue loss. According to Reuters, “the White House said its proposed tax cuts would help fuel higher growth and pay for themselves by generating an additional $2 trillion in revenue over 10 years.” This requires an estimated  3% growth in the economy as stated in the plan but the Congressional Budget Office estimates growth to not exceed 1.9% annually. This can be a cause for great concern as Trump’s plan may not reduce the debt even if it stimulates the economy, which it may not to a great extent.
 
The harshness of Trump’s policies makes them politically unpalatable and this, combined with the Russia scandal, renders his proposals politically and practically unviable. The U.S. economy, although not in shambles, is plagued by low economic growth and reduced job creation. Trump’s plans have the potential to stimulate economic growth and job creation, especially if tempered and refined by Congress. However, Trump’s adversarial relationship with the Democrats as well as many Congressional Republicans and not to mention Congress in general, hinder any meaningful debate on his economic proposals, let alone allow for their passage or implementation. Thus, the bottom line seems to be that of cautious optimism, given that Trump’s policies have quite a few merits and the fact the U.S. economy shows small but sure signs of slow revival.
 
The Millennial Review is taking the fight to the front lines as we battle for conservatism in the millennial generation. Join us! Like us on Facebook and Follow us on Twitter.-like in many ways.
 
The Infrastructure Plan
 
Trump's infrastructure plan is by far a laudable economic policy. A $1 trillion infrastructure plan will create durable assets for the economy, provide jobs, and increase productivity greatly. Moreover, as I have pointed out in an earlier article, the state of American infrastructure is in shambles and in great need of repair. 
 
Three potential problems associated with the infrastructure plan include inflation, the Fed rate hike and its impact on the national debt. It is known that a sudden spike in infrastructure investment leads to higher consumer spending which can cause inflation. However, inflation is at 0.2% and should not be a worry. In fact, a spurt in inflation due to infrastructure spending will be welcome for further economic growth. As far as debt is concerned, firstly, Trump’s proposed tax credits to companies will greatly ease the debt burden on the federal government. Secondly, job creation, economic growth, and asset creation as a result of infrastructure investment would provide great returns in the medium and long term.The only real problem seems to be the Fed rate hike of 25 basis points. This is because of Trump’s plan to provide tax credits for infrastructure investment to private companies. A 25 basis points hike in the bank rate would potentially deter companies from taking loans and using tax credits for investment in infrastructure.
 
Deregulation
 
Trump’s aim of deregulating the many legal frameworks that hinder economic growth is worthy of appreciation. However, his policies have not made much progress in implementing said aim. There are only two notable achievements in this regard. The first is the signing of an Executive Order which requires regulators to roll back two older regulations for every new regulation they introduce. While this will eventually lead to a reduction of regulatory frameworks in general, it does not make substantive progress in removing specific regulations. 

The second notable achievement, although legislative and accreditable to House Republicans to a large extent, is the ongoing effort to pass the Financial Choice Act which has been passed by the House and is awaiting Senate action. The Financial Choice Act repeals many provisions of the Dodd Frank Act that was adopted after the Great Recession to ensure financial stability using a regulatory framework. However, as Kimo Gendall, Jr. Editor of TMR points out,” the Act [has] several extremely limiting, or outright irrelevant regulations” and its repeal is therefore not unwelcome. Yet, this step should evoke only cautious optimism. The replacement of the Dodd Frank Act should not allow for aggressive and dangerous financial risks. 
 
Budget and Tax Plan
 
Trump’s proposed budget includes across-the-board cuts. According to Reuters, “Trump wants lawmakers to cut at least $610 billion from Medicaid and more than $192 billion from food stamps over a decade. He seeks to balance the budget within 10 years.” Trump’s budget seeks to defund many programs like Planned Parenthood and the National Endowment for Arts whilst making large spending cuts to education and the Environmental Protection Agency.
 
Trump's austere budget only wishes to increase defence spending and proposes a $ 1.6 billion down payment for the border wall with Mexico. It also seeks to raise money by selling half of the country's oil stockpile.
 
Trump’s budget makes many of the right cuts which are necessary to reduce wasteful expenditures and mitigate the growth of public debt. Many of the cuts will negatively impact welfare programmes but the recent growth of the accumulated national debt to around 106% of the United States’ annual GDP necessitates such tough measures, especially with the infrastructure plan on the cards.
 
Trump’s tax plan also proposes very many cuts to taxes. Firstly, it seeks to reduce tax brackets from the current seven to three. Secondly, it rolls back the Alternative Minimum Tax. Thirdly, the the tax plan seeks to eliminate the estate tax and the Affordable Care Act surcharge of 3.8% which was levied over the 20% capital gains tax. These measures are a step in the right direction as they seek to reduce complications in tax policy, ease taxation compliance, and stimulate investment. However, the tax plan offers a very dubious explanation as to how it will tackle revenue loss. According to Reuters, “the White House said its proposed tax cuts would help fuel higher growth and pay for themselves by generating an additional $2 trillion in revenue over 10 years.” This requires an estimated  3% growth in the economy as stated in the plan but the Congressional Budget Office estimates growth to not exceed 1.9% annually. This can be a cause for great concern as Trump’s plan may not reduce the debt even if it stimulates the economy, which it may not to a great extent.
 
The harshness of Trump’s policies makes them politically unpalatable and this, combined with the Russia scandal, renders his proposals politically and practically unviable. The U.S. economy, although not in shambles, is plagued by low economic growth and reduced job creation. Trump’s plans have the potential to stimulate economic growth and job creation, especially if tempered and refined by Congress. However, Trump’s adversarial relationship with the Democrats as well as many Congressional Republicans and not to mention Congress in general, hinder any meaningful debate on his economic proposals, let alone allow for their passage or implementation. Thus, the bottom line seems to be that of cautious optimism, given that Trump’s policies have quite a few merits and the fact the U.S. economy shows small but sure signs of slow revival.
 
The Millennial Review is taking the fight to the front lines as we battle for conservatism in the millennial generation. Join us! Like us on Facebook and Follow us on Twitter.

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