Skip to main content

Donald Trump Saul Loeb/Getty Images

Making America’s Deficits Great Again

The new tax legislation pushed through by Donald Trump and congressional Republicans is virtually certain to raise the budget deficit and, in turn, the current-account deficit. Whatever the resemblance to the Reagan-era tax cuts of 1981-1983, it's not morning in America.

FRANKFURT – US President Donald Trump and congressional Republican allies have succeeded in passing their big tax legislation. While it lacks many of the desirable attributes of true tax reform, it amounts to a success for Trump, who failed to deliver any other major piece of legislation during the first year of his administration. But what will it mean for Trump’s other major promise, to cut the US trade deficit?

Simply put, the Republicans’ tax law – which emphasizes big cuts, especially for corporations and the highest-income earners – is virtually certain to widen the budget deficit and, in turn, increase the current-account deficit. Trump’s legislative victory implies the return of the infamous twin deficits that followed George W. Bush’s tax cuts of 2001 and 2003, and Ronald Reagan’s cuts of 1981-1983.

There are different ways to measure the balance of payments, each appropriate for different purposes. The narrowest – and probably the least informative – measure includes only merchandise trade. Yet Trump likes to focus on bilateral merchandise balances, rather than a broader and more useful indicator, such as the overall balance of goods and services.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/mxoQrI1;

Handpicked to read next

Donald Trump speaks about the passage of tax reform legislation Saul Loeb/Getty Images

The US Donor Relief Act of 2017

Joseph E. Stiglitz

There is nothing about the GOP’s recently-passed tax package that lives up to its proponents' promises; it is neither a reform effort nor an equitable tax cut. Rather, the bill embodies all that is wrong with the Republican Party, and to some extent, the debased state of American democracy.

  1. benami155_ Ilia Yefimovichpicture alliance via Getty Images_netanyahu Ilia Yefimovich/Picture Alliance via Getty Images

    The Last Days of Netanyahu?

    Shlomo Ben-Ami

    In Israel's recent parliamentary election, voters stopped Prime Minister Binyamin Netanyahu's leadership of the country toward xenophobic theocracy. But Israel now faces a period of political deadlock, and it remains to be seen whether Netanyahu really will be politically sidelined.

    1
  2. reinhart39_ Sha HantingChina News ServiceVisual China Group via Getty Images_jerome powell Sha Hanting/China News Service/Visual China Group via Getty Images

    Jerome Powell’s Dilemma

    Carmen M. Reinhart & Vincent Reinhart

    There is a reason that the US Federal Reserve chair often has a haunted look. Probably to his deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that President Donald Trump will be reelected next year.

    3

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions