The recently passed Tax Cuts and Jobs Act was, according to its writers, designed to stimulate the economy. The Trump administration has championed the bill, saying that it will create economic growth of 3% per year, higher than the recent average of 2.3% a year. However, some economic analysts are lamenting other Trump policies, like tariffs and immigration restrictions, saying that they could counteract any growth the US could receive from the new tax code. So, could Trump’s policies wipe out tax cut benefits? Let’s take a closer look.
Tariffs and the Economy
In recent weeks, President Trump has made some big moves in trade that have been making headlines. Trump has been keen to increase tariffs on various foreign goods, saying that it should increase US production of these goods. Notably, the President recently announced a 25% steel tariff and a 10% aluminum tariff on imports from the EU, Mexico, and Canada.
Economic analysts say that, while its likely that these tariffs could increase US production of these goods, the pros of this increased production could be outweighed by the cons caused by tariff retaliation. For instance, immediately after President Trump announced these steel and aluminum tariffs, the EU, Mexico, and Canada responded by issuing a wide range of tariffs on a variety of US goods.
Essentially, analysts say that while tariffs on other countries could slightly stimulate economic growth in the US, these corresponding tariffs from other countries might cause a significantly bigger hit to the US economy.
Immigration Restrictions and the Economy
Some economic analysts have also lamented President Trump’s immigration policies. The reasoning behind this is that in order for the US economy to grow, there must be labor force growth. According to Macroeconomic Advisors’ managing director Joel Prakken, approximately half of all the US’s current population growth is due to immigration. Prakken also recently told CNBC that, by his estimate, by 2045 80% of all labor force growth will come from workers who have immigrated to the US.
Analysts worry about the strict immigration policies of the Trump administration possibly being too limiting. In essence, these analysts have stated that if fewer legal immigrants move to the US due to these policies, it could hurt US labor force growth and, in turn, hurt the economy.
The Future of Economic Growth in the United States
As with all new policies, the true effect President Trump’s new policies will only be seen with time. The same can be said for the Tax Cuts and Jobs Act, which drastically changed the tax code for the first time in many years.
At Vanguard Tax Relief, we are constantly watching new economic and tax developments to better understand the way these new policies will affect tax law, both now and in the future. To keep up with how the Tax Cuts and Jobs Act and the President’s new polices are projected to affect taxes and the economy, be sure to follow our blog for updates.