President Donald Trump’s first major move in the field of legislation was the congressional approval of the Tax Cuts and Jobs Act of 2017. According to Trump himself, the tax bill was going to be highly beneficial to the “middle-income people” of the country. The bill is thought to be one of the most important pieces of legislation to have been approved in the recent years. Therefore, many analysts at first assumed it would be a catalyst for a whole new era of economic growth.
However, now that the first impressions are settling down, opinions are beginning to change.
Namely, the bill impacted the economy in two ways. First, it sharply reduced the corporate tax rates. Secondly, it proposed a plan to bring the profits of untaxed overseas U.S. firms back into the country. At first, Wall Street rejoiced at the prospect of corporate tax cuts and additional funds being repatriated. Many assumed that these changes would lead to businesses increasing their investments, creation of jobs, and increased wages.
However, ever since the bill was passed, some aspects of the economy which people expected to grow have instead slowed down. As a result, some members of the Senate have discarded the bill as a change which would mainly benefit the wealthy, and bring only minor improvements to the middle class. Others assume that the truth lies somewhere between this pessimistic outlook and Trump’s lofty promises.
What We Know So Far
Initially, both the President and the Treasury Secretary Steven Mnuchin claimed that the new bill would result in a constant and radical boost to the economy. Despite their claims, however, most analysts expect a much less drastic change. What is most likely to happen as of right now is a brief, short-term boost which will have no major implications in the far future.
It was clear from the onset that the only real winners in this scenario are the corporations. The reduction of the corporate tax rate from 35% to 21% will greatly alter the overall tax burden of the U.S. in a global context. What’s more, the tax system will become more territorial by taxing companies on the profits they’ve earned inside the country.
As for the bill turning the overseas profits back to the U.S, people expect that to benefit a small number of companies for the most part. The companies most likely to benefit from the returning funds will be those in the fields of technology and pharmacy, as well as a few major banks. As a matter of fact, only a few companies have any major overseas funding. Those that do are more likely to use it to pay off debt or buy stocks than to invest in their workforce in the U.S.
A Clear Winner
One of the clearest winners will be Apple. The tax reform is already greatly boosting their growth, as well as their shareholder capital returns. As a matter of fact, Apple’s earnings are about to reach a new all-time record thanks to the consequences of the tax cut. The company seems to be using this growth spurt to advance towards a sustainable model of development.
Furthermore, the ability to instantly expense capital investment will be of use to telecommunication providers. However, in reality, the new rules are more likely to support existing plans than to create any new spending.
The new bill will have an impact on the real estate market as well. Namely, not as many house owners will have an interest in itemizing their deductions as before. There won’t be as much motivation to buy a home as opposed to renting one out. As a result, states with the most expensive real estate markets will likely see a much lower demand than before.
Moreover, U.S. citizens will no longer be legally penalized for not having health insurance. As a result, not as many healthy people will be buying insurance as prior to the bill’s passing. These financial losses will mainly be affecting hospitals and insurers. On top of that, a higher number of citizens without an insurance will likely be using medical services.
These were some of the main predictions regarding the tax cut. However, it is important to keep in mind that it is uncertain how durable the bill will be. The main problem here is the fact that the bill had no Democrat votes at all. A bill as major as this one will have a positive impact on some, while others will suffer damages. All of that opens up the possibility of various unintended outcomes.