North America

The new tax legislation pushed through by Donald Trump and congressional Republicans is virtually certain to raise the budget deficit and, in turn, the current-account deficit. Whatever the resemblance to the Reagan-era tax cuts of 1981-1983, it's not morning in America.

Congress is expected any day now to pass a really awful tax bill. If you want to understand why economists are confident that the tax cuts will not pay for themselves and why Republicans are disingenuous to claim otherwise, I recommend what Jason Furman and Larry Summers have been writing, e.g. in this column in the Washington post.

Given recent controversies, I was interested to read National Economic Council Director Gary Cohn’s answer to a “why are you staying?” question put by Stuart Varney of the Fox Business Network last week. To his credit Cohn did not back away from his reservations about the president’s response to the Charlottesville violence. He said “Look, tax cuts are really important to me. I think it’s a once-in-a-lifetime opportunity. We haven’t done tax cuts in 31 years. So, to be a part of an administration that gets something done that hasn’t been done for 31 years is enormously challenging, enormously interesting to me.

The Republican Party’s leaders in the United States House of Representatives have been hard at work for more than a year designing a major reform of personal and corporate taxes. With an election looming in 2018, the House Republicans are determined to deliver a reform package and send it to the Senate for enactment.

"U.S. President Donald Trump’s administration has now released its budget plans for fiscal year 2018. Among the details provided in the document, entitled America First – A Budget Blueprint to Make America Great Again, are projections for the expected path of gross federal debt as a percentage of GDP, which is shown to decline from its current level of about 106% to about 80% in 2027. Debt held by the public is expected to mirror this path, shrinking from 77% to 60% over this period....Unfortunately, neither projection is credible."

"Apparently, the budget forecasts that U.S. economic growth will rise to 3.0 percent because of the administration’s policies — largely its tax cuts and perhaps also its regulatory policies.  Fair enough if you believe in tooth fairies and ludicrous supply-side economics."

It’s hard to imagine a situation in which President Trump and GOP leaders could have negotiated a better budget than they did with this funding bill.