Traders work at the New York Stock Exchange in New York, the United States, on April 13, 2018. (Xinhua/Qin lang)
NEW YORK, Oct. 23 (Xinhua) -- The U.S. biggest tax overhaul in three decades has been making ripples or waves across the economic and social spectrum right on the steps to its one-year landmark, which, in the eyes of analysts and experts, is also the watershed around where its power and luster start to be tapering off.
The tax cut has so far mainly facilitated big businesses, helped bring offshore profits back home, delivered limited financial relief to average households, while pushing the fiscal deficit and public debt higher in the future, interviewees told Xinhua.
SHORT-TERM BENEFITS
In the tax revamp passed in December last year, the corporate tax rate was slashed from 35 percent to 21 percent and write-offs offered to people on all rungs of the economic ladder.
"There's no question (that) businesses and individuals have seen benefits from it. Certainly the economy has seen benefits from it," Jennifer Safavian, executive vice president of Retail Industry Leaders Association (RILA), told Xinhua.
Safavian's remarks were echoed by Steven Livingston, associate director of the Business and Economic Research Center, Middle Tennessee State University, who said "there is increased hiring because unemployment is going down," to 3.7 percent in September, the lowest since December 1969.
On the benefits of tax cut, John Monaco, a stock broker at the New York Stock Exchange, said "You are able to invest and create new business, because your tax rules allowed you to have certain discounts ... as an individual, you are able to find a little bit more money in your paycheck."
Economists have also attributed the current strong economic growth partly to the tax cut. The U.S. gross domestic product (GDP) increased at an annual rate of 4.2 percent in the second quarter of 2018, up from 2.2 percent in the previous quarter.
However, Bridgewater, the world's largest hedge fund, recently warned that the U.S. economy faces a looming deceleration as tighter monetary policy starts to weigh on growth and ratchets up pressure on financial markets.
Bob Prince, co-chief investment officer at Bridgewater, told Financial Times earlier this month that the recent market turmoil was triggered by investors realizing that this year's strong economic growth and robust corporate earnings were "likely peaking" as interest rates rise and the boost from tax cuts fades.
"We are at a potential inflection point where the economy is moving from hot to mediocre," Prince said.
CORPORATIONS FAVORED
U.S. public companies announced nearly 437 billion U.S. dollars worth of stock buybacks in the second quarter this year, eclipsing the previous record of 242 billion dollars in the first quarter, according to research firm TrimTabs.
"They're purchasing their stocks back, which is typically what you do when you don't know what else to do with the more money that you've got," said Livingston.
Critics believed stock buybacks, which tend to boost share prices, disproportionately benefit shareholders and corporate executives over workers.
"Most of the cut goes to corporations and wealthy individuals, so the average person is not going to see much of a reduction," Darrell West, senior fellow at the Brookings Institution, told Xinhua earlier this year.
"If ordinary workers don't benefit, they will not be in a position to spend more money and stimulate greater economic growth," he said.
Americans were increasingly unsure about benefits from the tax cut. Only 34 percent said they are for the tax cut, compared with 41 percent against, showed a poll from Monmouth University released in June. But in January, respondents were evenly split with 44 percent on each side.
A newly-released report by Prosperity Now and the Institution on Taxation and Economic Policy, finds that the tax cut "not only adds unnecessary fuel to the growing problem of overall economic inequality, but also supercharges an already massive racial wealth divide to an alarming extent."
Of the nearly 275 billion dollars of tax cut that Americans will receive in 2018, about 80 percent goes to White households, the report said. On average, White households will receive 2,020 dollars in tax cut this year, while Latino households will receive 970 dollars and Black households receive 840 dollars.
RISKS IN MEDIUM TERM
While the tax cut has heated up the U.S. stock markets and provided short-term stimulus to growth, it could pose economic risks in the medium term, according to the International Monetary Fund (IMF).
These risks include higher public debt, an inflation surprise, international spillover, future recession, and increased global imbalances, the IMF said in July.
The White House has argued that the tax cut would stimulate the economy to bring enough government revenues to fund its deficit spending, providing that the U.S. economy maintains an annual growth rate of 2.9 percent.
But the U.S. economy is unlikely to sustain such a strong growth. The Federal Reserve last month expected a growth at 2.5 percent in 2019 and 2 percent in 2020, as the fiscal stimulus gradually fades.
A newly-released report by the Treasury Department showed U.S. budget deficit rose to 779 billion dollars in the fiscal year 2018 ending Sept. 30, the highest since 2012, due to the tax cut and increased government spending.
Government spending grew by 3.2 percent compared with the previous fiscal year, while government receipts only rose by 0.4 percent. The budget deficit as a share of GDP rose to 3.9 percent, up from 3.5 percent in the previous fiscal year, the report said.
The Trump administration's tax cut is expected to add 1.46 trillion dollars to federal government deficits over the next 10 years, the Congress's nonpartisan Joint Committee on Taxation has estimated.
The Congressional Budget Office (CBO) has warned that growing budget deficits would boost U.S. public debt sharply over the next 30 years. The U.S. national debt has surpassed 21 trillion dollars, approaching about 78 percent of the GDP.
"Given the high level of public debt and future spending commitments in the United States, we would not recommend" the U.S. adopting a pro-cyclical fiscal policy that would lead to a rise of the public debt-to-GDP ratio in the medium term, Vitor Gaspar, director of fiscal affairs at the IMF, told Xinhua.
Economists have also warned that the Trump administration's tax cut and trade policy could push the economy into a "boom-bust cycle" and cut short the late-stage expansion.
About two-thirds of business economists in the United States expect a recession to begin by the end of 2020, showed a recent poll of 51 forecasters by the National Association for Business Economics (NABE).
(Video editor: Zhao Yuchao)
