Tax cuts to boost US economy as recession looms: Poll

WASHINGTON • Fiscal stimulus, including large Republican-backed tax cuts, will deliver a modest boost to the United States economy in the next two years, although many economists also expect a recession to start during that time, according to a new survey.

About half of the economists say fiscal policy changes will augment US growth by 0.2 to 0.39 percentage point next year, according to a survey of 51 forecasters by the National Association for Business Economics conducted from Nov 6 to 15. About one-fifth project a bigger gain and another fifth see no benefit to growth.

Since the survey was conducted, the Republican tax proposal has undergone numerous changes that may alter its impact on the economy, with the potential for further modifications during Senate and House negotiations before it heads for President Donald Trump's signature.

Even with the bump, a slight majority anticipates a recession beginning sometime before the end of 2019, with most of that group seeing a business-cycle peak in the second half of that year. That compares with 48 per cent who see the expansion running till at least 2020. Economists were most likely to cite trade protectionism as a top risk to expansion, followed by a substantial stock-market decline and higher interest rates.

The effects on the economy from the tax plan, pushed by the Trump administration and congressional Republicans, have been a contentious topic. Republicans have said that the additional growth unleashed by the legislation means the cuts pay for themselves by increasing revenues; many economists disagree. The White House says the package will trigger an investment boom by companies that will lift growth to a sustained 3 per cent pace and make up for the loss of tax revenue from lower rates.

At the time of the survey, 76 per cent of the economists expected tax cuts to be enacted during the first half of 2018.

In another question, most economists said the renegotiation of the North American Free Trade Agreement will have either a marginal effect or no impact on the US economy. Twenty-five per cent expect the results of the talks to be marginally positive, while an equal proportion expect it to be marginally negative and 19 per cent predict zero net benefit. Mr Trump has threatened to pull out of the 23-year-old accord if Mexico and Canada do not bow to US demands.

Economists were split on the reasons US wage growth has remained weak even as the job market tightens. About 30 per cent blamed poor productivity growth, while 27 per cent pointed to low inflation and 19 per cent cited an ageing population.

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A version of this article appeared in the print edition of The Straits Times on December 05, 2017, with the headline 'Tax cuts to boost US economy as recession looms: Poll'. Print Edition | Subscribe