Republicans have said the tax cuts, which increased the nation’s debt, would pay for themselves through strong economic growth. The Trump administration has said the economy can sustain 3.0 percent growth over the long term, an assertion many economists have disputed.
Once the 1.5 trillion dollar tax cut is spent, the Congressional Budget Office predicts the U.S. economic growth will fall well below the Trump administration’s 3 percent target
In an updated economic outlook, the nonpartisan Congressional Budget Office (CBO) projected that the long term impact of Trump’s economic policies will be negative. The extent of the damage will depend on the likely failure of the Trump trade wars and the inability of the US to pay off the additional debt other than by inflation.
In an ohso un Republican fashion, Trump’s GOP enacted a Keynesian style tax cut. His government printed money by slashing corporate and personal income taxes accompanied by a $1.3 trillion boost in spending. All this free money, combined with a one time sell off of soybeans to avoid the Chinese tariffs, lifted the economy to a 4.1 percent annualized growth, the highest in nearly four years.
Sounds like happy days are here again and MAGA. But there is a cost. Usually Keynes’ approach has been to use deficit financing to pull an economy out of depression. Keynes intent was not just to spend money but to stimulate investments ..public or private .. that boost productivity. The great bulk of Trump’s tax cut went into stock buy backs … inflating stock prices in what is likely a bubble because that money was not invested in productivity. Government spending, instead of going to infrastructure or education, is going to building military hardware. The GOP seems not understand that overspending on the military does not increase the productivity of an economy faced with trade wars, alienation of our traditional trading partners, and the emergence of a China centered trading block that has already surpassed by far the US as a center for value added manufacturing.
The CBO now expects growth to slow in the second half as consumer spending and agricultural exports either fade or reverse. By 2019, CBO predicts GDP growth will slow to 2.4 percent. This is about where it was before the tax cut but the result, with the added debt and the trade war, may be long term consequences that weaken American competitiveness.