Successes & Failures of 2016 U.S. Elections — Part 24


by Sunil J. Wimalawansa

Each country needs a comprehensive, interlinked, forward-looking action plan.  This includes, sustainable ways for creating and maintenance of energy, education, jobs opportunity, equality, food security, and nature protection, leading to prosperity with peace and happiness.  Rather than caught up with current situations, proactively setting up plans encompassing the future needs are essential.  

The need to implement a national action plan for prosperity:

( February 1, 2017, Washington DC, Sri Lanka Guardian) The 2017 presidential inauguration and associated rhetoric are over, and the real work has begun.  Work at the White House has commenced with robustness.  We expect Mr. Trump to focus and create a comprehensive and interlinked national action plan, in part based on the promises he made in October 2016 in his speech at Gettysburg, Pennsylvania, in which he talked about the “contract with America.”  This should be the foundation of the Trump-Pence administration; it is the basis upon which he and the Republicans were elected by the people.

Whether one voted for him or not, Mr. Trump is the president of all Americans, regardless of party politics, ethnicity, or skin color.  This is a two-way process that must be honored.  Thus, Mr. Trump must reciprocate and perform as the leader for all; not only for those 46.5% Americans who voted for him.  If he sticks to the promises made, and carry out these fairly, within the legal frame work efficiently, and, he can expand this beyond 60% in time to come.

It is difficult to achieve this, unless he keeps distance himself from acts of favoritism, nepotism, antagonism, arrogance, and revenge.  He must set aside all conflicts of interest to build on the confidence placed in him by the American people.  In this regard, he has resigned from the Trump Organization, severing ties with his former empire, and appealed to the public to be united.

Tax cuts and tax breaks:

Mr. Trump and his team have a chance to guide the biggest tax policy overhaul since 1986 into law.  People are looking forward to see this happening early in this year.  Thus, the administration must not only get the percentage reduction of taxes right for people, industry, and for the economy, but also the timing of it.  Getting held up with trivial things and fighting with media would only distract the progress that he needs to make.  In this regards, delaying tax reform to the end of the year or to the next year would erode the confidence constituents have placed in him.

Click on the image to read the previous parts of this series

Republicans have a majority in both the Senate and the House, but passing major corporate and personal tax cuts is not straightforward.  It is a complex issue that will be associated with a large reduction in tax revenues to the treasury, at least during the first year until corporations start to generate higher profits, increase hiring and the associated payroll taxes flowing to the treasury.  Inevitably, spatially, there will be a significant gap between the tax cuts and tax revenues.  Thus, this will create not only a fiscal challenge but also a political battle.

The Trump administration expects that the loss of revenues from any tax cuts could partially be offset by stronger economic growth.  Under the current policy, the Congressional Budget Office sees a budget deficit of around 3.2% of gross domestic product for the next four years.  However, the budget deficit is estimated to rise to 5.3% of GDP under the House Republicans’ tax plan, and to 6.8% of GDP under Mr. Trump’s proposal, per analysis by the research firm Cornerstone Macro.

It is notable that cutting the corporate tax from 35% to 20% would generate a minimum of 15% extra profits for corporations.  However, the expected growth and compounding effects are likely to be more than this, beyond 20% for certain companies.  With this increased growth, companies will be able to hire more people, creating a positive cycle of income generation and wealth.  Increased company profits and the number of people employed will generate more tax revenue to the government, albeit after a lag time.

However, critics argue that the new plan of tax reform will provides half of the total value of its proposed tax breaks to the top 1% earners.  Moreover, as per the Tax Policy Center (a project of the Brookings Institution and Urban Institute), House Republican members are planning to gives additional tax benefits to this particular group.  If this is the case, then this will not fly well with the public.

Where does the money come from?

Even in the presence of almost-unanimous agreement within the Republican Party about cutting marginal tax rates, the party machinery is conflicted over offsetting the huge revenue loss to the government.  In this regard, neither the Republicans in Congress nor Mr. Trump can expect overwhelming support from the Democrats.

Despite these potential benefits, in the absence of changing formulas in the entitlement programs, the government needs to demonstrate where they will get the money to negate the funding shortage and provide the extra funds needed for the proposed infrastructure development programs, expansion of the military, and so forth.

Mr. Trump has not stated yet how he proposes to pay for the needed more than two-trillion dollars that is required to fund the infrastructure development projects, building the wall across the U.S.–Mexico border, and ports and enhanced border security, open health care for veterans, and expansion of the military, considering slashing taxes without adding to the budget deficit and/or monetarizing through quantitative easing.

Supporting United States industry and assisting expansion: 

The Trump policies of America First, and accompanying theme of American Industries First will also give an additional boost to local companies.  This combination is likely to ignite growth and job creation.  These companies will be in a competitive advantage if the Trump administration opts to impose a tariff for incoming goods manufactured abroad.

These activities further boost the growth of companies based in American, and the job seekers and consumers alike will benefit.  However, such approaches also have significant negative repercussions including the loss of goodwill and initiating potential trade hostilities.

Renegotiation of North American Free Trade Agreement (NAFTA), reinitiating constructions of large pipelines, relaxing environmental regulations, cutting down restrictive regulations, and cancellation of Trans-Pacific Partnership (TPP) and negotiation of bilateral trade-deals also will provide positive stimulus to local companies and additive to the growth.  Thus, it would not be surprising, by the first quarter of 2018, the U.S. growth rate would exceed 4%.

Optimism and investor and consumer confidence will continue to increase but at the expense of increasing interest rates and inflation.  The last quarter of 2016, had an anemic growth of 1.9%.  If there are not too many Congressional obstacles, we estimate that the U.S. growth in the last quarter of 2017 be around 3.0%.

To be Continued

Professor Sunil J. Wimalawansa MD, PhD, MBA, DSc, is a Physician-Scientist, Social Entrepreneur, Philanthropist, and Educator with strategic long-term vision.
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