What effect will tax reform have on Business?
In its current form, the proposed tax law changes should reduce costs and increase profit. This is because the highest corporate tax rate will be reduced from 35% to 20%. Will this mean record profits for corporations? Quite possibly. What effect will this have on economic growth and job creation? Well, if the Bush tax cuts in 2001 (also known as “The Economic Growth and Tax Relief Reconciliation Act of 2001”) can be used as a guide, then it should spur growth as GDP went from 0.2 in 2001 to 2.0 in 2002 and 4.4 in 2003.
However, that same good news could not be said about unemployment. Due to the recession of 2001, unemployment figures went from 4.7 in 2001 to 5.8 in 2002 and 6.0 in 2003. The same could happen with the next implementation of tax reform. Unemployment figures in 2017 are averaging about 4.4 percent for the year to date. Since the next recession could occur as early as next year 2018 (per my prediction), we could see a recurrence of economic growth and the same time as unemployment growth (or a lack of job creation).
The significant difference between the Bush tax cuts in 2001 and the proposed Trump tax cuts in 2017, is that at the time the Bush tax cuts were proposed, there was a budget surplus, and President Bush wanted to give the surplus back to “the people.” The current budget deficit is $440 billion (FY2018). President Trump’s tax cut will only serve to increase the deficit and increase the national debt. The Bush tax cuts made sense in 2001, because of the budget surplus. Do the Trump tax cuts make sense in that light?