U.S. President Donald Trump touted the Republican tax cut plan Friday, six months after he signed it into law, saying it was strengthening the U.S. economy and helping average Americans by increasing investment, jobs and wages.
“It is my great honor to welcome you back to the White House to celebrate six months of new jobs, bigger paychecks and keeping more of your hard-earned money where it belongs: in your pocket or wherever else you want to spend it,” he said.
A recent report by the nonpartisan Congressional Budget Office, however, projects a gloomy fiscal outlook in the U.S., which is experiencing rising debt under the Trump administration.
The CBO report predicts the country’s debt burden will double in 30 years, exceeding even the U.S. debt load during World War II.
The tax law, officially titled the Tax Cuts and Jobs Act, was the largest overhaul of the country’s complex tax laws in three decades. It cut the corporate tax rate, which was among the highest in the industrialized world, from 35 to 21 percent. It trimmed rates for millions of individual taxpayers as well, with the biggest cuts mostly benefiting the wealthiest earners, although some taxpayers saw bigger tax bills because of various changes in the tax regulations.
The CBO report, which cautioned the high debt levels also increase chances of a fiscal crisis, projects the tax cuts could spur short-term economic growth, but it quickly would fall back to a long-term average of 1.9 percent.
While most of the rising debt is due to increasing entitlement spending and other problems that existed before Trump’s 2016 election, the report said the new tax law is contributing to the short-term debt by cutting government revenue. Spending increases approved by both Republicans and Democrats are also raising deficits.
The Republicans’ $1.5 trillion in tax cuts and $1.3 trillion in spending enacted earlier this year have already helped push the CBO’s debt projections higher through 2041, the report said.
Some analysts say the country’s fiscal health is quickly deteriorating because of higher spending for entitlement programs such as Social Security, insufficient government revenue and spiraling interest payments on debt.
“The massive deficits caused by policymakers’ recent tax and budget decisions have drastically worsened the country’s long-term finances,” said Bipartisan Policy Center economic policy director Shai Akabas.
The Brookings Institution’s Tax Policy Center concluded in a June 13 report that “the new tax law will raise deficits and make the distribution of after-tax income more unequal.”
Former Federal Reserve Bank chair Janet Yellen, a Democratic appointee whom Trump replaced with Republican Jerome Powell, said Thursday that the tax cuts would probably provide only a meager boost to the growth of the U.S. economy.
“The calculations that I’ve seen and seem reasonable to me suggest that the payoff is likely to be in tenths of a percent, which in growth is a lot, but may not be what some people are hoping for,” she said.
Any benefits for individuals and corporations from the tax cuts may be undermined by Trump’s imposition of tariffs on foreign countries.
Tariffs have already been announced on Chinese products, foreign aluminum and steel imports from Canada, Mexico and the European Union, and on solar panels and washing machines and Canadian lumber and paper. Trump has also threatened tariffs on automobile imports and on other foreign products and materials.
“Tariffs on steel and aluminum imports are a tax hike on Americans and will have damaging consequences for consumers, manufacturers and workers,” Senate Finance Committee Chairman Orrin Hatch, a Republican, said May 31.
The Republican chairman of the House Ways and Means Committee, Kevin Brady of Texas, said last month that the tariffs “hurt our efforts to create good-paying jobs by selling more ‘Made in America’ products to customers in these countries.”
Retaliatory tariffs imposed by Canada, China, the EU and Mexico could hinder the ability of U.S. companies to sell products to other countries, which could in turn kill American jobs and suppress wages.