Larry Kudlow, President Trump’s chief economic adviser, expects Americans will see more benefits from the new tax law as the year progresses. Kudlow was adamant about his belief that the economy will grow at a solid 3% this year, and took exception to the figures put out by the Congressional Budget Office (CBO). While appearing on Fox News, Kudlow said the Congressional Budget Office has no idea how to measure the impact of tax cuts, and dismissed the CBO’s prediction that the tax cut bill would raise the debt by $1 trillion over a decade. As a stalwart anti-Keynesian, the pro-private sector economist stated, “Never believe the CBO. Very important. Never believe them.” Kudlow went on to say, “They’re always wrong, especially with regard to tax cuts, which they never score properly because they don’t understand the growth, the incentives and the encouragements to reward success.”
The tax benefits are just beginning Kudlow states. “”You’ve got child tax credits you’re doubling, the doubling of the standard deduction, you’ve got lower income tax rates, you’ve got lower business tax rates.” In addition, the administration will mandate a reduction in the amount of time and effort a tax return will take the average American to fill out. Perhaps not as little as mailing a postcard to the IRS, but definitely a more streamlined process.
According to a recent POLITICO poll, only one-quarter of registered voters told the pollsters they had noticed an increase in their take-home pay. Kudlow explains that this is because the tax cut will benefit businesses first, and workers next. “The biggest winner right now is business investment,” he said. “That is huge. Equipment, technology, software and so forth, factories. That’s where the real nuts and bolts of this thing, the incentives at a lower business tax rate, both large and small.”
That gives us some insight into possible government revenues for the next few years. However, income is only half of the equation. Expenses need to be analyzed to determine whether we have a surplus or a deficit. White House’s from George W. Bush, through Obama, and on to the recent budget signed by Trump, have been spending like drunken sailors on leave. By 2022, federal deficits will top 5% of GDP, something that happened only once between World War II and President Obama’s terms in office. According to Investor’s Business Daily, spending is on track to climb even faster — going from 20.6% of GDP this year to 23.6% by 2028.
Kudlow and the Trump administration have been rallying around these increased growth numbers as we head into the mid-term elections. However, someone might want to tell the alleged fiscal conservatives in Congress that if they can’t get control of spending today, it’s a virtual certainty that they will end up agreeing to a deficit-cutting tax hike in the future.
Kudlow insists that the recent saber rattling on tariffs between China and the U.S. are merely precursors to discussion. Kudlow sees the situation as more of a “trade dispute” than a “trade war,” which he believes can be negotiated out by both parties.