The pros who make their living forecasting the economy overwhelmingly expect President Donald Trump and his fellow Republicans to push through tax cuts in time for next year’s congressional elections. They just don’t think that the reductions will do all that much to help the economy in 2018.
That’s the message from the latest Bloomberg monthly poll of economists, taken Aug. 4 to Aug. 9. Of 38 respondents, 29 expect Congress to pass tax-cut legislation by November 2018. The policy changes though are only expected to add 0.2 percentage point to the pace of gross domestic product expansion in 2018, according to the median figure from analysts penciling in an impact.
The Bloomberg survey forecasts growth in 2018 to be only slightly higher than this year -- 2.3 percent versus 2.1 percent, according to median projections from a broader pool of 71 economists. What’s more, analysts see the economy losing momentum in 2019, with expansion falling back to 2 percent, contrasting with the Trump administration’s forecast of a further pickup.
“I think they’ll do something and it will probably be somewhat stimulative in the short run,” said High Frequency Economics Chief U.S. Economist Jim O’Sullivan, referring to Trump and Congress. “I don’t expect a huge impact from it.”
Cuts to individual and corporate rates would fall short of what GOP leaders and the Trump administration have promised -- a once-in-a-generation permanent overhaul of the U.S. tax code, similar to what happened in 1986 under former President Ronald Reagan. If Republicans use a budget procedure for a tax bill to bypass Democratic opposition in the Senate, cuts would have to expire if they add to the long-term federal deficit.
First Half
The administration is betting that a mixture of corporate and individual tax cuts, along with other tax code changes, will eventually help lift annual economic growth to 3 percent, from the 2.1 percent average rate of the last eight years. In the first half of 2017, coinciding with Trump’s first six months in office, output rose at a 1.9 percent annual pace.
In order to win passage of a sweeping tax plan, the administration is holding a weekly, all-hands-on-deck meeting to coordinate strategy between the president and his allies, according to White House officials. The intensive discussions contrast with the at times haphazard approach the administration took in its failed attempt to repeal former President Barack Obama’s health-care law.
White House officials have said they’re still committed to a permanent tax revamp, and the plan is to start hearings and a markup of a tax bill after Labor Day so a version can get through the House in October and the Senate in November. Trump and Senate Majority Leader Mitch McConnell have sparred in recent days over the amount of time needed to pass complicated legislation, such as repealing and replacing Obamacare.
Trump officials see their policies accelerating GDP growth to 2.7 percent in 2019, on its way to 3 percent within the following two years. Economists beg to differ.