When will Trump's tax cuts take effect?
Interim economic review in the USA : Trump's recipe for success is also: "It's the economy, stupid"
Bill Clinton's core formula for political success has been quoted near death. But it contains a deep truth. And that remains valid even in Donald Trump's unconventional presidency. "It's the economy, stupid!"
Trump is a successful president by this Clinton standard. The US economy is doing great. In the fourth quarter of 2017, the gross domestic product (GDP) will grow by more than three percent. This is already happening for the third quarter in a row. You have to look back to the beginning of 2015 to find a single quarter in which this succeeded under Barack Obama.
Many political commentators may stand up on the back of their necks when they look at Trump, especially in Europe. This president raves the stock marketers in the USA. The Dow Jones share index reached an all-time high 60 times in Trump's first year in office in 2017. Shortly before Christmas, he cracked the 24,000 mark, 20 percent above the level when Trump took office eleven months earlier.
Government spokeswoman presents the numbers with relish
The presidential spokeswoman Sarah Sanders spread these numbers with relish in her last briefing before Christmas in front of the White House correspondents. “1.7 million new jobs were created this year. The unemployment rate has fallen to 4.1 percent. That is the lowest level in 17 years. "
As a rule, Sanders has to ask himself sharp questions in the press room of the White House, the atmosphere is hostile from her perspective. With thieving joy she uses the announcement of good economic figures to complain once more about the “lying media” in front of the cameras, which allegedly completely distort the real situation: “I would like to encourage everyone to step out of the capital city bubble and think about what This year means for American citizens. ”According to their account, Trump delivered what he promised: economic growth and new jobs.
The criticism that the government is negligently deregulating and reducing the protective regulations for consumers and the environment is met with a completely different narrative. “For every new regulation there are 22 that we have eliminated. That saves taxpayers $ 8 billion and has freed US operations from the clutches of a bloated administration. ”The time when the EPA“ waged a war on coal and killed jobs is over ”. Important oil and gas pipelines, delayed by the Democrats, are now being built. And in the Arctic, “oil can be drilled responsibly”.
Americans are feeling the boom in their wallets
The president promises that 2018 will continue to be positive. A few days before Christmas, Congress passed “the biggest tax cut of all time.” The tax rate on corporate profits fell from 35 to 21 percent. Individual tax figures will also be relieved, admittedly to a much lesser extent and only for a limited time, until 2025. The tax reform is clearly designed in such a way that it will further stimulate economic growth and leave more in the wallet of a clear majority of voters, at least for the time being. The Republicans are targeting the congressional election year 2018 and the year of the next presidential election, 2020. The big end, the elimination of tax breaks for individuals, would only be felt after Trump's second term in office.
Here and now, citizens feel the upswing in their wallets. Almost two thirds describe the economic situation as “good” or even “excellent”. And even more, namely three quarters of those surveyed, said their personal financial situation was “good” or “excellent”. The Democrats' suggestion that these are the positive effects of Barack Obama's presidency is becoming less convincing.
Meanwhile, many citizens are also benefiting Trump from the good economy. That was not always so. In March, 67 percent of the credit for the good economic development was still attributed to his predecessor Obama, in May 58 percent, in August 50 percent. In November, ratings of whether this was Obama's or Trump's upswing were roughly balanced for the first time. Many US citizens still have reservations about Trump's policies. It is approved by 37 to 39 percent and disapproved by 57 to 59 percent. More Americans also rate his economic policy negatively (51 percent) than positively (44 percent). But in this area the discrepancy is far smaller than in other areas.
Criticism of the timing of the tax reform
Some economists are already criticizing the “timing” of the tax reform or warning of harmful long-term consequences. Former Fed Chairman Alan Greenspan argues that even now the greater danger lies in overheating and rising inflation. An additional drive through tax cuts is not needed. It should have been kept for worse times. And: Since the tax rates are falling significantly, the state will receive significantly less tax revenue. Over time, that would force substantial cuts in spending. And then the growth rates would decrease noticeably. However, these technical discussions have little influence on the public image of the economic situation. The current look into your own wallet is crucial. And it usually has more weight than other political issues in voting decisions. "It's the economy, stupid!"
Christoph von Marschall is the first Helmut Schmidt Fellow of the ZEIT Foundation and the German Marshall Fund of the United States (GMFUS) and is currently working in Washington on a study on the future of transatlantic relations.
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