Large Scale Tax Cuts In The United States Have A Significant Or Profound Impact On The Trajectory Of The Global Economy

Trump deserves to be an online celebrity, grabbing the headlines every minute. He broke some of the routines of traditional American politicians, completed the counterattack from an "unreliable" president to a "highly reliable" president, launched a record large tax reduction plan in the United States, and reduced corporate income tax from 35% to 15%. The importance of Trump's tax cut plan not only affects the American people, but also profoundly changes the trajectory of the global economy.

At present, the interpretation of Trump's tax reduction plan is relatively negative, even considered as a grand conspiracy. From the perspective of competition and policy game among countries, after the currency war, the tax war must continue. Trump's tax reduction plan may lead to global tax reduction competition or emerging market The devaluation of currency and the massive inflow of global enterprises and funds into the United States are external financial risks that emerging markets have to pay attention to.

However, the far-reaching and significant policy of large-scale tax cuts in the United States should not be blindfolded, let alone hastily draw conclusions. First, let's look at historical experience. The last large-scale tax reduction plan in the United States was also made by the Republican Party in the 1980s when Reagan was in power. At that time, the United States experienced post World War II Keynesianism and artificially stimulated demand. After the oil crisis in the 1970s, the American economy fell into stagflation, with insufficient effective demand and high inflation. At that time, Mundell, Laffer, Kemp and other representatives of the pioneers of the supply school advocated tax cuts to promote economic growth.

Reagan used large-scale tax cuts and tight money supply to deal with the problem of economic stagflation. That tax cut brought about an economic boom cycle of more than 20 years. From 1982 to 1999, the Internet bubble in the United States burst. The spillover effect of the United States economy drove the economy of the four Asian dragons to soar and boosted global economic growth. In 1984, the US economy grew at the fastest rate in 50 years, accounting for 6.8% of inflation. The chairman of the Federal Reserve at that time was Volcker, who pursued a tight monetary policy and controlled inflation. The global economy entered a golden age of low inflation and high growth.

The Reagan School of Supply gave up the demand side stimulus of Keynesianism, but it almost couldn't continue because of the increasing fiscal deficit. At the last moment, the US economy grew strongly. By the time of Clinton, the US fiscal surplus had been achieved. The launch of Trump's tax reduction plan also faces insufficient effective demand in the global economy and excess capacity. The only difference is that the inflation pressure is very small. Trump not only cut taxes on a large scale on the supply side, improved residents' savings and purchasing power, and increased effective demand, but also carried out demand side expansion, and promoted a trillion dollar infrastructure investment update plan. However, the difference this time is that the United States has a huge debt problem. The key is how long Trump can persist.

From another perspective, Trump The catfish effect of tax cuts may bring a new wave of global structural reform. Structural reform is the consensus reached by the G20 Hangzhou Summit countries. Since the global financial crisis in 2008, major economies in the world, including the United States, have adopted the method of injecting a large amount of liquidity to prevent the spread of the economic crisis. Although quantitative easing in the United States has brought about economic recovery and an 8-year bull market in the Dow Jones Index, it has also brought about problems such as the deepening of the gap between rich and poor, the debt crisis, and the unsustainable trend of economic recovery. It is necessary to promote structural reform and expand effective supply.

Although the US tax reduction plan has some negative impacts on the economies of various countries in the short term, it will promote structural reform in various countries in the medium and long term. Pressure becomes the driving force of reform, reducing corporate tax burden and increasing residents' income can make the cake of the global economy bigger, which is a medium - and long-term driving force for global economic growth.

China is also implementing the tax reduction of replacing business tax with VAT and the supply side structural reform. The tax reduction in China is mainly to reduce business tax, while the tax reduction in the United States is mainly to reduce income tax; Different from the United States, China's structural reform and the Belt and Road Initiative will lead to a more open economy. After the global financial crisis, the debt of all countries has risen significantly. Structural reform will provide impetus for the endogenous growth of the global economy. Residents' savings and enterprises will continue to increase investment After the economic growth enters a virtuous circle, it is possible to gradually solve the debt problem. The key to the effect of tax cuts is to stick to it.

From this perspective, the US tax cuts are positive for global economic growth, and the US economy may resume strong growth. When Trump came to power, Buffett, who had always been cautious, was confident that the US Dow Jones Index would reach 100000 points; A shares should not be too pessimistic. However, Trump pursues the priority of the United States, does not want others to hitchhike, and implements trade protection, which is the biggest challenge.

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