Tax cuts will not create budget deficits

As with practically all economic analysts, Kiplinger forecast in December 2016 for 2017, after Trump was elected, that unemployment would fall to 4.6 percent, GDP would increase 1.8 percent, and the stock market would increase 6 percent.

As with practically all economic analysts, Kiplinger was short for 2017, as jobs increased by 2 million to an unemployment of 4.1 percent, GDP grew 2.4 percent, and the S&P 500 grew 21 percent.

Kiplinger Magazine now forecasts for 2018 that the stock market will increase at least 8 percent, jobs will increase another 2 million (to 3.9 percent unemployment), and GDP will increase at least 2.6 percent – all without the tax cuts.

Why is this important? Because the impact of Trump continues to be underestimated, and the impact of tax reform/cuts will cause even more growth than anticipated.

Profits for corporations grew 11 percent in 2017 and are expected to grow another 11 percent in 2018, without tax reform. And those increases to profits are from increased revenue, not from cost-cutting … economic growth! The pie is getting bigger. There's more for everyone, not just redistribution of wealth.

If the Kiplinger forecast for 2018 is short again and if the tax reforms are implemented, then GDP will grow more than 3 percent for the first time in 10 years (Obama never did it. He was the first eight-year president not to achieve 3 percent economic growth for at least one year), corporate profits and stock prices could grow more than 25 percent, and employment could add more than another 2 million jobs with more than 3 percent wage growth (wages actually fell during Obama).

The "experts" continue to underestimate Trump and his effect on the economy. Those same people forecast that the stock market and the economy would implode if Trump were elected. As pointed out by Kiplinger, 15 points of the 21 points growth to the market in 2017 was because of the new administration. The Trump administration cut more than 900 regulations, rules and executive orders of the Obama administration (can you say Keystone Pipeline? How about no TPP or Paris Climate accord? Or a 30 percent cut to the State Department?). Manufacturing increased for the first time in decades. The average growth to GDP under Obama was an anemic 1.5 percent compounded yearly. Most stock market gains under Obama came from zero interest rates that drove up P to E ratios.

GDP is growing at least 2.4 percent, and the stock market is growing at least 21 percent for 2017 under Trump, while the Fed increased interest rates (which drives down P to E ratios and economic activity).

So, what about tax reform?

The CBO forecast that the proposed tax cuts would cause a deficit over 10 years of $1.4 trillion. That would be $140 billion per year, or a 3 percent deficit compounded annually, which by itself would be tiny when compared to the deficits of the Obama administration. That CBO forecast used a growth to GDP of 1.8 percent compounded annually. If the economy only grows as it did in 2017, at 2.4 percent compounded annually, then there is no deficit. There would be a tax surplus (as long as politicians don't spend it). And growth is the reason for the tax cuts. But the CBO does not recognize growth from tax cuts in its estimates.

If an additional 2 million net Americans are employed each year as in 2017 and as forecast for 2018, then 20 million more Americans will be paying taxes (income, payroll and Social Security) for an added $20 billion each year for each additional 2 million employees, or $1.1 trillion in additional taxes over 10 years – and Social Security will remain solvent without any reductions to benefits.

At a 25 percent growth to stock prices for 2018 compounded from the 21 percent in 2017, an average portfolio will increase about 50 percent in just 2 years. Why is that important?

More than half of all Americans own stock either directly or indirectly through pension plans, retirement accounts and mutual funds. As 10,000 baby boomers retire each day, their net worths increase as their stock holdings and retirement accounts increase. Then those retirees are less of a burden on society.

In addition, the federal government forces retirees to take minimum disbursements from their retirement accounts. As the values in those retirement accounts increase, the minimum disbursements and the taxes on those disbursements increase proportionally. So there will be no federal deficits as taxes on retirement distributions increase proportionately to market increases … at least 50 percent increases for the first two years of Trump.

How do you think Americans will vote in 2018 as their stock holdings increase 50 percent, as 4 million net new jobs are added (including minorities who typically vote as a bloc for Democrats), and as wages increase? So why do you suppose that Democrats and establishment politicians oppose these tax cuts?

Economic growth is good for America, in every way. More wealth, more jobs and economic self-sufficiency eliminate race warfare, class warfare and identity politics of liberals. Economic growth eliminates deficits.

Experts and government analysts got too used to the anemic economic growth of the last administration and do not believe that the USA can be as economically great as it once was. Economic growth causes surpluses (as long as politicians don't spend it). Trump and the tax reforms will cause more economic growth, not deficits. Trump and the tax reforms will make America great again.