U.S. ends fiscal 2017 with $666 billion budget deficit
The trump administration is pushing a tax cut bill because they believe that the economic growth we are experiencing could pay for it and continue to push the economy forward. In 2017, the US has already increased the budget deficit by 3.5% (80 billion) of gross domestic product. The outlays of this increase were dedicated to social security, Medicare, and Medicaid along with spending on spending for hurricane relief. Therefore, it is important to pay attention the effects of a tax cut in the economy. Although income will rise as an effect, businesses will suffer.
We know that the tax cut will increase the US deficit. However, the trump administration is confident that economic growth will offset this deficit. As we have learned in class, tax cuts increase income and propensity to consume, but raise interest rates causing investment to crowd out. Although raising income is a good thing, we have also learned that business growth (investment) fluctuates more than other factors for the economy which means that this variable affects growth more than anything else. I hope that this tax cut does not crowd out investment as much as to create consequences from which the economy suffers.
Somehow tax cuts is going to affect investment, since we expect a rise in output, therefore we will see a rise in real interest rates. Eventually, as we learned in class, this will crowd out investment. I do not think it is necessary to go with the "tax cuts" since economy is doing well and a crowd out in investment will destabilize the economy. In conclusion, I do not support tax cuts and I don't think it is necessary, in my humble opinion.
ReplyDeleteSomehow tax cuts is going to affect investment, since we expect a rise in output, therefore we will see a rise in real interest rates. Eventually, as we learned in class, this will crowd out investment. I do not think it is necessary to go with the "tax cuts" since economy is doing well and a crowd out in investment will destabilize the economy. In conclusion, I do not support tax cuts and I don't think it is necessary, in my humble opinion
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