US President Donald Trump's tax-cut Bill will boost economy - and also the national debt

WASHINGTON - In a scramble to score a legislative win, President Donald Trump and the Republican Party are rushing through a tax Bill that, while likely to spur economic growth in the immediate term, may well leave the United States saddled with a bloated national debt in the long term.

Democrats and Republicans working to reconcile two versions of the Bill reached a deal on Wednesday (Dec 13). The need to rush it through was strong, and discussions were reportedly occasionally acrimonious. Republicans have accused the Democrats of obstructionism.

Among other features of the Bill is a corporate tax rate cut - from the current 35 per cent to 21 per cent - designed to restore America's global competitiveness. Business sectors have widely welcomed the cuts.

The Republican Party, bruised by its loss in a Senate race in Alabama, badly needs the win.

On Wednesday, Mr Trump, flanked by a selection of middle-class families from across America who would benefit from tax cuts, made a strong pitch for the Bill - the most sweeping tax reform and reduction legislation in decades - to be ready by Christmas.

"As a candidate," Mr Trump said, "I promised we would pass a massive tax cut for the everyday working American families who are the backbone and the heartbeat of our country."

"Now we are just days away from keeping that promise. We want to give you, the American people, a giant tax cut for Christmas."

 
 
 

The Internal Revenue Service had informed him that if the Bill were to be signed into law by Christmas, tax cuts would start taking effect from February pay cheques, he said.

Analysts mostly agree that the cuts will spur growth. The question is growth for whom.

Opinion in the US is sharply divided. Polls show that most Americans believe the tax cuts will end up benefiting only the wealthy.

On Wednesday, Mr Trump tried to counter that narrative. Family after middle-class family, dressed in their best for the occasion at the White House, spoke briefly about how they would use the savings from tax cuts.

"People may be excited about the idea of a couple of thousand dollars in the form of a tax cut and be less aware of the damage created by the higher national debt," Ms Maya MacGuineas, president of the bipartisan non-profit Committee for a Responsible Federal Budget, told The Straits Times on the phone.

"On one hand, people are evaluating how this will affect them in terms of tax cuts. On the other the purpose is to grow the economy. The question is how much growth and who will receive that growth, how will it be spread. Growth is good for everybody, but it is certainly likely to disproportionately help the more well-off," she said.

"The third aspect is the uncounted downside. It's going to add, after economic growth, a trillion dollars to the national debt."

Most analysts agree that the economy will grow. Where they disagree is that there will be enough growth to offset the costs. "The growth in terms of government revenues will be about 20 per cent of how much the cuts cost," Ms MacGuineas said. "So it still leaves a big deficit."

But Treasury Secretary Steve Mnuchin has insisted that the tax cuts will pay for themselves by triggering an economic surge and expanding tax revenues.

A US Treasury analysis expects them to boost economic growth by 0.7 per cent annually, more than making up for their cost.

Soon after Mr Trump made his White House pitch for the Bill, Mr Mnuchin said in a brief statement the Bill would "restore faith in the American dream by creating a simpler, fairer system that will lead to more economic growth and opportunities for everyone".

"Tax reform will not only provide tax cuts for hard-working Americans and their families, it will also make American businesses more competitive so that workers will have access to more, better-paying jobs."

But a radio interview on Wednesday offered a glimpse of what could lie down the road. In it, House Speaker Paul Ryan, when asked about the debt, said the government will look at "entitlement reform", or social welfare programmes.

Programmes such as Medicare and Medicaid "are the big drivers of debt", he said, fuelling fears that when the spending cuts come, they will hurt the middle classes and the poor the most.