Trump’s plans to extend tax cuts and cut red tape will likely boost economic growth—but it will come at a cost

The economy was one of their main problems how voters went to the polls this year. So what does Donald Trump’s return to the White House – and Republican gains in Congress – mean for the US economy?

I followed the elections closely, taking a keen interest in each candidate’s economic plans. I believe there are two key areas where a Trump victory could bring economic benefits over the next four years. But there is also a price to pay.

Extension of Trump’s 2017 tax law

Let’s start with taxes.

Almost all provisions of paragraph. Tax Cuts and Jobs Act The 2017 law, passed by Congress and signed by Trump during his first year in office, expires at the end of 2025. If these parts of the law are not extended, it would result in approximately $4 trillion in tax increases. until 2034. This will place an additional burden on households emerging from a period of high inflation that has caused significant hardship for many families – and contributed to Trump’s victory.

Extending the personal income tax cut would keep marginal tax rates from jumping and would (relative to their expiration) result in growth of economic production in the long term. This happens because tax cuts increase demand for goods and services in the short term. Lower tax rates increase the incentive to work, save and invest, which leads to more hours worked, more capital, increased productivity and the creation of new businesses in the long term.

The law also improved tax simplification by doubling the standard deduction. And it promoted equity by expanding the child tax credit, reducing the number of taxpayers subject to the alternative minimum tax, and limiting deductions for state and local income taxes. I don’t know how you would like to change this. Expiration of these provisions will result in significant increase tax burden for many low- and middle-income households.

Given that Trump signed this law into law in 2017, I think it’s a good bet that he will at least renew the law, which would be much easier with a Republican Congress. AND many economists argue this will be good news for American households and the economy as a whole.

Eliminating bureaucratic red tape

More important, in my opinion, are what I expect will be his more business-related policies, which should promote innovation, investment and productivity, many of which are also related to the 2017 tax law.

Some of these policies are also related to the same tax laws – and therefore it is very likely that they will be expanded or reformed at the beginning of Trump’s second term. Two provisions that will soon expire are 20% deduction for small businesses and a measure to help pay for the costs of equipment such as computers and manufacturing equipment.

A small business deduction that allows owners to deduct up to 20% of their share of company income from their individual tax bills. It was found that the increase in employment by 1.2 million jobs per year. It is also important to ensure that small businesses remain competitive with larger competitors. It was found that allowing businesses to pay the full cost of equipment increase production by about 5% in the long term.

It is important to expand these provisions to avoid large tax increases on small businesses that would reduce job creation and innovation, as well as slow growth and lower living standards.

A related issue is the accounting for research and development expenses. The 2017 tax law effectively raised taxes on companies by requiring those costs to be spread over five years, raising the cost of capital and disincentivizing investment. Trump said he would change it therefore, all expenses, including R&D, can be immediately expensed. This should promote economic growth.

More broadly, Trump’s first term was characterized by a reduction in bureaucratic red tape as regulatory reform has been a focus of his administration. Studies of the economic cost of the new rules show that the additional regulatory burden under the Trump administration was significantly lower than under the administrations of George W. Bush, Barack Obama and Joe Biden.

Research shows US economy still holding back heavy-handed and poorly targeted regulation that slows growth and innovation. Trump promised to further reduce the rules during the second term, so that it could lead to a solid increase in economic output.

Considering the promise of artificial intelligence I believe that to improve productivity and economic growth in the near future, it is more important than ever to ensure that government agencies set the rules of the game in a fair and efficient manner, without stifling the economic benefits of increased innovation.

Cost reimbursement

But there is one big nuance here. Extending these tax cuts would put a serious strain on the national debt, which is currently at an unsustainable level.

Since the turn of the century, US debt has increased from $10 trillion to more than $35 trillion. Congressional Budget Office Projects that the share of debt in GDP will increase from 99% in 2024 to 166% in 2054.

Reforming the tax code to avoid large tax increases is important, but offsetting lost revenue through spending cuts will be vital to avoid increasing debt. Failure to do so will significantly increase the deficit and national debt, and put the country’s finances on an even more precarious path.

But Trump could go further than just seeking compensation. In my view, the start of a new administration is the ideal time to create a new fiscal commission to jump-start bipartisan dialogue on sustainable fiscal policy solutions.