RUNNING HEAD: ECONOMICS
Economics article
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Institution
ECONOMICS
Impact of president Trump Tax Cut Act on the American economy and GDP
The Tax Cut and Job Act were signed into law on December 2017 by Trump
administration. The cuts deepened the national debt to around 77% of the total Fed budget. The
corporation tax rate was reduced from 35% to 21% and they will stop paying tax from income
earned from foreign operations and the income will be taxed at between 8-15% that is lower than
what was currently being paid at 35%. The influx of business investment will be witnessed
leading to a higher income and wages for the American citizen. Economic growth will
experience a boost in the short term due to an unexpected increase in business investment and
labor supply. The GDP will increase by 2.5% due to the reduced cost of capital and marginal tax
rates and a further increase in wages of about 1.5%. (The international banker, May, 2018).
The Trump presidency expected to increase the rate of economic growth by 4% which is
faster than being healthy. Higher economic growth predicted by President Trump leads to
unhealthy economic growth, overconfidence, and irrational exuberance. It further leads to
damaging busts caused by the sudden economic boom. The major factors that caused changes in
economic growth and business cycle include capital availability, demand and supply and how the
economic future is being perceived by the market. According to the key economic indicators, the
U.S economic outlook is healthy. The gross domestic factor represents the most critical factor
that measures the output production of the nation. The growth rate for GDP is expected to remain
between 2% - 3%. The rate of unemployment as forecasted is expected to increase at a natural
rate. Technically, we are experiencing a Goldilocks economy since there isn’t too much deflation
or inflation ((The international banker, 2018).
ECONOMICS
The recent forecast predicts that the GDP growth rate will increase by 3.1% in 2018, and
2.5% in 2019. The estimate is influenced by the economic policies of such as the Tax Cut Act
2017 signed into law by Trump. The rate of unemployment will drop to 3.5% in 2019 from 3.7%
in 2018 which is less than the Feds target of 6.7%. However, the job growth is attributed to low
paying jobs in food service and retail industries. The rate of inflation is predicted as 2.1% in
2018 and 2.0% in 2019 which are important when setting the monetary policies. The
manufacturing sector is expected to increase faster than the economy, in general, leading to the
high growth rate in production of about 2.8% in 2018 but is expected to reduce to 2.6% in 2019
and further 2% in 2020. The interest rate is expected to increase to 2.5% by end of 2018 (The
international banker, 2018).
The short-term interests are controlled by the Fed such as the interest-only loans, banks’
prime rate, the Libor, credit card rate and other adjustable rates. The Feds $4 trillion in
Treasury’s acquired during quantitative easing will be reduced hence creating more supplies in
the treasury market. The impact includes increasing the 10-year Treasury note that will improve
the long-term interest rate such as the corporate bonds and the fixed rate mortgages (The
international banker, May, 2018). The long-term interest rate will increase from 2019 since
investors have been demanding less of the safe investment as a result of the improved economy.
The increased demand for dollar means the treasury yields will drop. The improved global
economy leads to less demand for dollars (The balance, October, 2018).
There is an increased volatility in the oil prices. The oil prices are depressed by the strong
dollar. This has caused oil companies to lay off workers. The U.S Shale oil prices reduced the oil
prices by 25%, a good news to the economy. The cost of transportation, raw materials, and food
reduced thus increasing the profit margins. The amount of disposable income for consumers
ECONOMICS
increased and both the homesteads and the companies are saving instead of spending. Increased
saving by both families and companies has caused a slight slowdown in the economy.
In summary, it’s wise to be on the lookout for stock market bubble which will signal the
peak in the business cycle. The Trumps tax cut is expected to create more jobs and further
recession will occur in two or three years ahead as a result of trade wars (The international
banker, 2018).
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Reference
US Economic Outlook for 2018 and Beyond Experts Forecast Steady Growth source:
https://www.thebalance.com/us-economic-outlook-3305669 retrieved 01/10/2018
The economic impact of the trump tax cuts source
https://internationalbanker.com/finance/the-economic-impact-of-the-trump-tax-cuts/
