The GOP betting bill will boost the economy before the 2018 and 2020 elections



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President Trump said on December 4 that "the stock market has been reacting incredibly well" to the Republican Party's tax bill. "The only thing that hurts is the false news," he said. (The Washington Post)

When Republicans face voters in November, Senate Majority Leader Mitch McConnell (R-Ky.) Predicts that the economy "will perform better." There are many possibilities that he is right. The global economy has been on the rise over the past year. Even before the tax bill, most experts had been predicting that momentum would continue in 2018 and 2019 with more jobs, more business investment and higher wages.

Now it is also likely that there will be mbadive tax reductions. Republicans in the House of Representatives and the Senate have approved tax bills, and are about to meet to resolve their differences and approve a final version that can go to President Trump's desk.

In general, the US government UU It does not pump more stimuli in the economy when it's that healthy, but that's what Trump's tax plan and the Republicans in Congress would do, at least for a year or two. The result could end up being a steroid economy in the 2018 and 2020 elections. Unemployment, which is already at its lowest point in 16 years, could easily fall below 4 percent for the first time since the dotcom era . And growth, solidly above 3 percent since April, could easily exceed 4 percent for one or two quarters next year.

The benefits of the Republican tax plan are burdened, most badysts say, which will probably help the Republican Party in the 2018 and 2020 elections. Many of the less pleasant things – the tax cuts that expire for the middle clbad after By 2025, the deficits expected to reach a trillion dollars in a decade and the probable spending cuts in the social safety net – will not come into force until later.

The Democrats tried to issue the bill as a "scam" that is heavily titled toward the rich and corporations. But that will be hard to sell if the economy is buzzing.

"If the unemployment rate is 3.7 percent on Election Day 2018 and wage growth is accelerating (both possible), [it’s] it is difficult to sell the tax cut as the death of States United. "James Pethokoukis, a member of the American Enterprise Institute of the Right Trend, tweeted on Monday.

The US economy UU It has not grown more than 4 percent since the second quarter of 2014 (and has not happened) for a whole year since 2000). If the economy exceeds that mark with Trump, even by just a quarter, I would probably promote it on Twitter and beyond as a great victory. On Monday, Trump spokeswoman Kellyanne Conway was doubling the latest stock market highs and lows as the "new normal".

Many have pointed out that the tax bill is deeply unpopular in surveys. Even among Republicans, 40 percent do not approve the plan. But the reality is that most people do not know what's in the tax bills. The details are hard to understand, and that's why it might be easy for Republicans in a year or two for the tax cuts to lead to an economic boom, even if that boom was going to happen anyway.

"What we call an 'economic rebound' in 2016 transformed into a robust synchronized global expansion, global growth may still be accelerating, but even if not, energy will continue until 2018," predicts Bob Baur, chief global economist at Principal Global Investors.

Baur, like many Wall Street economists, aims to stabilize oil prices and a fall in the dollar that made US exports. UU were cheaper as key drivers of the economic rebound.

But voters do not like to worry about what is driving recovery, as long as they feel that things around them are better. Warnings about the potential dangers of the tax bill in the future – growing debt and recession if the economy overheats – could be set aside if times are good.

"Right now, most Americans do not even know what Congress just voted for them," says Chris Rupkey, chief financial economist at MUFG Union Bank. "The tax collections in the future will be lower, and that can only mean one thing: that the cost of mandatory ownership of the federal government will have to be lower as well."

While the Americans were trying to digest over the weekend, it's on the tax bill and what it means to them, the investment bank Goldman Sachs sent a note to customers that summed it up well. For 2018 and 2019, Goldman predicts stronger growth due to the tax plan: around 0.3 percent higher (hence, about 3 percent per year). But after that, it's not so pretty.

"We note that the effect in 2020 and beyond seems minimal and could actually be slightly negative," Goldman economists wrote. Lately much attention has been paid to what Goldman is saying because the bank has many of its former employees in prominent positions in the White House, including Treasury Secretary Steven Mnuchin and the National Economic Council leader, Gary Cohn, who have played key roles in drawing up Trump's tax plan.

Kent Smetters, the lead economist behind the Penn Wharton Budget Model, agrees with Goldman. His model shows a very modest growth impact due to tax cuts in general, which is why he projects that approximately $ 1.5 trillion will be added to the national debt, but the growth is likely to be evident from the beginning. Smetters says it will come from the stacks of cash companies like Apple and Microsoft that have been withholding abroad that are likely to recover when the tax rate falls substantially: from 35 percent now to around 14 percent in foreign cash returning to United States States.

The expectation is that most of that foreign cash will end up paying the debt or going to the shareholders in the form of higher dividends or more share buybacks. But even if only a small amount goes to new investments, it would cause a rebound in growth for one or two quarters. Business spending has already increased, which helps boost growth above 3 percent from April to September. The Morgan Stanley Capex Plans index, a measure of corporate spending, is at its highest level since 2007.

"In the three quarters prior to the elections last November, the growth of investment was a huge 0.9 percent" says Rajeev Dhawan, director of the Economics Forecasting Center at Georgia State University. "In the three quarters after the elections, the growth of investment has been a healthy 5.9 percent."

The Federal Reserve may intervene if the economy gains too much and raises interest rates, a way to slow growth and inflation But the Fed has been very cautious about raising rates in recent years. Most do not believe that that will soon change under the new Federal Reserve chairman, Jerome Powell, nominated for Trump.

The end result is that the US economy is at its "maximum potential" for the first time since the Great Recession, according to the Budget Office of the non-partisan Congress. Few economists think that an additional stimulus is needed, but it is probably coming in anyway with the tax bill.

"The economy does not need a tax cut," Rupkey said. "This is the first Congress in the history of the United States to cut taxes mbadively when the economy is already in full employment and everyone has a job."

Republicans calculate that they can turn stronger economic growth into victories at the polls, even if that means more debt and greater inequality later on.

"We believe that this will produce results, we can certainly talk to the American people in the fall of 2018 and 2020," McConnell said on ABC Sunday. This week. "

Read more:

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Winners and losers on the Republican Party's tax bill: An execution list

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