US President Donald Trump wants to stimulate the economy by introducing tax reductions for enterprises and private households. The economy is to gain a further boost from a general unravelling of the tax maze. Yesterday’s announcements of the President and his Finance Minister are probably intended to underscore that the election pledge of achieving „the greatest tax reform of all time“ is to be implemented at all events. For even though the Republicans have the majority in both chambers of Congress, hardly any of Trump’s election pledges have been realised until now. A preliminary legislative draft to reform „Obamacare“ was unceremoniously outvoted in the House of Representatives. Many of the President’s executive orders were revoked again by the courts or could only be applied on the basis of huge restrictions. The green light given to the billion-dollar expansion of the „Keystone XL“ oil pipeline, which had been shelved for years, was the only economy-stimulating measure to be realised.
Even if tax cuts and, in particular, tax simplifications should be welcomed on principle, the key stumbling block to yesterday’s announcements should not be brushed aside. For the means to counter-finance the prospective reforms are based on extremely fragile assumptions. In the past, the dream of being able to close a fiscal gap created through massive tax cuts by generating higher income by means of stronger economic growth has never come true. Even if the many tax loopholes, above all in corporation taxation, can be filled, there is a strong likelihood of a visible surge in new debt. The hitherto relatively muted response of financial markets reflects the fears that public debt in the United States could spin out of control.
However, the overhaul of the US tax system is still at the very early stage of the parliamentary process. It remains to be seen how this continues, given that it opposes the fundamental position of most Republican parliamentarians with regard to creating a further expansion in public debt. In addition to this essential philosophy, they are also likely to be considering the fact that the population’s ageing process is also striding ahead in the USA, albeit not as quickly as in Europe. The coming weeks will show whether parliamentarians are more prepared to close ranks behind the President’s plans than in the case of the Obamacare reform.