- Trump’s tax cuts in 2017 faced criticism for favoring the wealthy
- The new tax bill aims to benefit middle-class citizens
- There are concerns about the new bill’s long-term inflation impact
Donald Trump’s presidency so far has been very emblematic and polarizing. While the President shows a special appreciation for cryptocurrency development—talking about creating a Strategic Bitcoin Reserve and also revamping the SEC—his foreign policy and protectionism have created uncertainty in the market. His aggressive stance on certain aspects regarding foreign debt has led to a devalued U.S. Dollar and imminent risk of more inflation in the shortcoming future.
During his first term as President of the United States, Trump made a lot of noise for his controversial tax cuts. In 2017 Trump enacted the Tax Cuts and Jobs Act (TCJA) bill, which included significant tax cuts for a small part of the U.S. population.
This measure was actually really criticized as—at the time—it was seen as a bill that focused on providing tax cuts to the wealthy, creating even more wealth inequality in America. And now, Trump is doubling down on this policy, recently announcing an even larger and more “inclusive” tax cut bill.
In fact, according to White House press secretary Karoline Leavitt, Donald Trump is willing to go after his own class of billionaires, in order to gather the funds for a bill that would focus on alleviating taxes for middle-class citizens.
“This will be the largest tax cut in history for middle-class, working Americans,” Leavitt said during a press conference. “No tax on tips, which is obviously a very public campaign promise that the president made. No tax on seniors’ Social Security, no tax on overtime pay, renewing President Trump’s 2017 middle-class tax cuts.”
If successful, the new measure could become a huge victory for the Republicans, as it would benefit largely the American working class. However, there is a debate to be had regarding the new bill creating inflationary pressure in the economy.
Tax Cuts and Inflation
The 2017 Tax Cuts and Jobs Act (TCJA) achieved mixed results. While the U.S. celebrated a 2.9% GDP growth rate from 2017 to 2018, the discount wasn’t enough to significantly boost market consumption, particularly by companies.
Moreover, the TCJA reflected well on the job market, with 2.1 million new jobs created by 2019. While other factors were also relevant to this growth, there is an argument that the tax discount for corporations helped in creating more jobs.
The 2017 Act achieved modest to moderately bad results when it comes to controlling inflation. The inflation rate increased from around 2.1% in 2017 to approximately 2.4% in 2018. However, it slightly decreased to about 2.3% in 2019.
Given that the previous tax cut bill was looking to benefit companies and higher-income Americans, there may be an argument that a new bill looking to lower taxes for the middle class could achieve better results.
That would only be possible if the government is able to avoid drastically increasing its national debt. Lower taxes for the working class could boost the economy’s demand for products and services, which might help keep inflation under control. However, if the tax cuts lead to a significant increase in the national debt, they could potentially affect inflation in the long term, even if there are long-term benefits to the tax cuts.
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