Economics Refresher on Tax Cuts

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The Trump tax cuts are the most significant pro-growth action in a generation. The impact is so profound and so pervasive that it’s hard to fully quantify. So to take a quip from CNBC’s Cramer “the current market is not bearish or bullish, it is a beast.” So why are economists so mixed on their assessment of the impact of tax cuts? I thought maybe others are confused too so here is a pedagogical analysis. Let’s look at the influence of corporate earnings - whereon the margin one dollar of earnings a week ago was worth 0.65 cents and now, after tax cuts, is magically is worth 0.79 cents as the tax rate subtracts only 0.21 cents. That is not a forecast, people, that is pure math. Suddenly, spending on labor and capital became more profitable. This spending translates into GDP growth and increased productivity. What if a corporation or small business doesn’t invest? You mean that they distribute their higher after-tax income to shareholders or business owners? Well, all the power to them then. Owners get to spend it as they see fit which becomes higher incomes to the providers of those goods and services that they purchase. This sounds like a virtuous cycle that will likely spread globally. How come the bearish economists don’t understand this? I don’t know, but sign them up for Voya Global Perspectives™ and have them read our 2018 Global Perspectives Forecast: Pro-Business Economy Unleashes Growth

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