According to a Financial Times article published on January 25, 2017, US President Donald Trump signed a variety of executive actions aimed at increasing US protectionism. Furthermore, economists believe that the economy's GDP will expand in the future. The essay addresses the four issues listed below:<\/p>
Analysts foresee massive tax cuts worth $ 2.5 trillion
In the short term, the tax cuts are projected to boost the country's growth prospects. Following the presidential election, consensus economists altered their forecast for growth. The proposal by Trump\u2019s government envisions slashing tax rates paid by SMEs to 15 percent. The policy will also eliminate estate tax, alternative minimum tax and provide a parallel system that hits wealthier people (Romei, 2017).<\/p>
Income taxes would be reduced into three brackets, a change from the current structure which comprises of seven income tax brackets. The highest tax rate is expected to be lowered from 39.6 percent to 33 percent. This will result in a drop of overall tax burden which consequently boosts the disposable income. The GDP is expected to increase due to decline in taxes (Romei, 2017).<\/p>
The article discusses production and personal consumption estimates for the 2017 fiscal year
The likelihood of an increase in consumption rates is expected to the extra budget allocated to the automobile sector. An additional 200,000 vehicles are expected to be sold in the current fiscal period. More so, expected tax reductions are likely to contribute positively to the consumer sector which would eventually result in full employment. Among other factors that will boost domestic production and consumption is the improved bargaining position of major trading partners. China, Brazil and Mexico have been facing substantial trade deficits and therefore, it is expected that would enforce minimal retaliatory measures (Romei, 2017).<\/p>
An upward forecast of growth in corporate profits in 2017
The article estimates this growth to rise from less than 2.25 percent to 4.5 percent. However, corporations will have to pay taxes on foreign profits. Rise in corporate profits strengthens the economy\u2019s GDP due to the higher spending and taxes received from such corporations (Tingle, 2017). Higher production means good business for companies and therefore it creates more impetus to expand. More so, it enhances more exportation of capital goods. The following graph illustrates the issue discussed.<\/p>
(Romei, 2017)
Question 2: GDP
Gross domestic product the monetary value of finished products within the within a certain fiscal period. In the United States, this parameter is evaluated quarterly. GDP factors in all private and public consumption as well imports and exports. According Romei\u2019s article in the financial times, the country\u2019s GDP decreased during the 2016 fiscal year. However, after President Trump took office, the GDP gradually increased (Romei, 2017)<\/p>
First quarter GDP performance has been historically bad for the economy especially on election of a new president
However, the statistics below clearly illustrate the huge effect of the election. These results mean that there more job creation, increased productivity and higher wages to US Citizens (Tingle, 2017). More so, GDP is expected to increase due to the aggressive monetary policy such as zero interest rates and expansionary fiscal policies proposed above.<\/p>
The details are illustrated in the following paragraph.<\/p>
(Romei, 2017)<\/p>
How GDP will affect the Economy
There a number of effects of the tax reforms on the economy. GDP growth goes hand in hand with decline in public finances. The expected tax reform combined with high public spending will result in a downturn in some sectors of the economy. The economy is expected to experience a public deficit of $ 21 billion as compared to 2016\u2019s fiscal year (Gordon, 2017).<\/p>
Secondly, it is expected that inflation will increase but the price of the dollar will be stronger. This is attributed to the competiveness of the country\u2019s export sector. Consensus economics elaborates this point but stating that that inflation would rise by 2.5 percent in 2017. Inflation could be good to the economy because it drives consumption because it increases the spending rates. However, rising prices makes savings to be harder and also drives investor to venture into risky businesses (Gordon, 2017). More so, Trump\u2019s controversial migration policies could also impose pressure on the labor market. For instance, the current report on SMES stipulates that there is high prospects of increase in interest rates.<\/p>
Conclusion
From the analysis, it is clear that the numbers speak for themselves. For that reason, I agree with the fact that cutting taxes will increase GDP. Increase in GDP is attributed to the boost in labor productivity. Higher productivity means increase in growth rate as well as the standards of living. However, this policy is likely to boost inflation. The rationale for this explanation is that tax cuts boosts spending and reduces unproductive government spending. This means that the government will reallocate resources to lucrative sectors which principally increases the overall size of the economy. A fair assessment of the above argument is that a tax change will minimize budget deficits, encourage work and investment.<\/p>
References
Gordon, Robert. (2017). Rise and Fall of American Growth. Place of publication not identified: PRINCETON University PRES.
Romei, Valentine. Economists Revise up US Growth Forecast for this Year. (January 25, 2017). Retrieved From: https://www.ft.com/content/d7903676-e144-11e6-9645-c9357a75844a
Tingle, Laura. (2017). In search for a Good Governmnet: Great expectations &political amnesia. S.l.: Black Inc.
