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CCTV: US tax reform or into a market wave of explosives tax relief is not inevitable

December 04, 2017 at 06:40
Author: Lawsuits Wang Yahong
source: CCTV news
edit:Oriental wealth network

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  Trump's "tax relief red envelope", who will be a red envelope bomb?

On the 2nd of this local time, the U.S. Senate passed 49 large-scale tax concessions with 51 votes against it. The U.S. House of Representatives passed a tax concession bill. Without exception, after a unified version of the Senate and House, Submitted to Trump to sign will become law. The tax reform act is seen as "the biggest achievement" after Trump took over his post, involving over one trillion U.S. dollars. If it finally becomes law, it will be the largest U.S. tax relief program in three decades.

Trump tax reform is the most watched content is the corporate tax rate from 35% to 20%, in addition to the personal income tax has also been reduced to varying degrees.

Trump push for tax cuts, the United States there is no shortage of controversial voices. Senate Majority Leader Mitch McConnell said the tax cuts provide an opportunity to increase the competitiveness of the U.S. economy and prevent jobs from being lost overseas and for the middle class. But Democrats criticize the tax cuts that mainly benefit the big US businesses and the rich. In addition, due to the United States' position in the global economy, the tax cuts in the United States will inevitably affect not only the United States, but also spillover effects on other countries. What does Trump's tax reduction mean for the U.S. economy and the global economy? Look at the interpretation of our two contributing commentators.

  CCTV interpretation: the ladder pumping will always fall

Can Trump Economics truly stimulate the U.S. economy? How effective is it? Not only are economists disagreeing with each other, but people in all walks of life in the United States also hold different positions. The reason for this is that the role of basic economic principles in complex economic life is affected by many factors, especially in the United States, the largest economy in the world.

  U.S. Democrats: Trump could not find the best tax rate

When it comes to tax cuts, many people refer to the "Laffer curve."

The Laffer curve depicts the relationship between the government's tax revenue and the tax rate. In general, raising the tax rate will increase the government's tax revenue. However, when the tax rate rises above a certain limit, the operating costs of the enterprises will rise, the investment will decrease, and the income will decrease, that is, the tax base will be reduced, but the tax revenue of the government will decrease. According to the Laffer curve, a higher tax rate will curb economic growth, reducing the tax base and tax revenue. Conversely, tax cuts can stimulate economic growth, expand the tax base, and increase tax revenues.

Laffer Curve hopes to find an optimal tax rate, both to promote economic growth, but also increase government revenue. However, such an optimal value can not be found simply, especially in a country like the United States where the party struggle is so serious that it affects almost everything. When the bill was passed by the Senate, the result of the vote was 51:49. This is basically the embodiment of the strength of the two parties. Behind the obvious difference lies the interests of the representatives of the two parties. Obviously, Democrats do not think Trump can find the optimal tax rate for the Laffer curve.

  Americans' debt burden is either exacerbated

One area where the United States is different from the rest of the world lies in its huge fiscal deficit. If this is not the global dominance of the U.S. dollar, this extra-ordinary position will be a huge crisis for any other country. And this time, the tax relief bill would ideally serve to activate the economy and increase the tax base. The bill will also reduce government revenue and increase the fiscal deficit for some time. The bill is expected to reduce government revenue by about 1.4 trillion U.S. dollars in the next 10 years. According to the U.S. debt clock, U.S. debts now exceed 20.57 trillion U.S. dollars, with an average U.S. dollar of 63,000 U.S. dollars and a taxpayer's burden of 170,000 U.S. dollars. Trump's massive tax cuts will further aggravate the debt burden on Americans. As a result, Democrats and many experts have criticized the tax reform bill as a source of increased federal fiscal pressure.

A study released earlier by the Washington-based think tank tax policy center said: "Most of the tax cuts will be made by high-income families, in terms of dollars or after-tax income." Studies show that by 2027 nearly 50 % Tax relief benefits will be exclusive to the 1% rich class. Simply put, the tax reform program, the rich benefit, middle pay.

  The actual consequences of the uncertainty

In fact, tax cuts have always been a pros and cons of things, and almost no economy in the world is developed by tax cuts. Trump is looking forward to tax reform that will attract the "triple-reflow" of manufacturing, intellectual property and high-tech talent, but may not necessarily predict a possible worldwide tax relief. Like to promoteimport and exportWhen the currency devalues, like the fight, if we all strive to cut taxes, I am afraid the expected effect will be weakened many. As a result, the real consequences of Trump's tax cuts are extremely uncertain. Contrary to what Trump is expecting to expand the U.S. tax base and the federal deficit does not go up or down, more countries now worry about a pessimistic path. That is, the stimulus is not obvious, the deficit is rapidly expanding, and at the same time it leads to a worldwide competitive tax cut. . Last year's G20 summit in Hangzhou adopted an important policy is to strengthen the coordination of international tax policies. The massive tax cuts in the United States have brought uncertainty to policy coordination.

If the tax cuts are only for a short period of time, just to please some people and even to lack of international responsibility, it is hard to escape the metaphor of an image and the ladder will always fall.

  CCTV Interpretation: "Tax Reds" may become the market volatility explosives package

This Trump's tax relief program raises particularly concerns because its policy implications can have significant long-tail effects outside the United States, and Trump's tax-relief package could become a market-driven explosives package.

  Capital markets or "bombed"

First of all, it may be the capital markets that are bombed. Arrangements involving the overseas cash of U.S. companies may cause market distortions. For quite a long time many multinational corporations based in the United States have left a large amount of overseas-earning profits locally rather than repatriated to the United States for tax avoidance purposes. For example, Apple alone has over 200 billion U.S. dollars of cash left overseas The 50 largest U.S. companies still have up to 1.6 trillion U.S. dollars in earnings. With the implementation of one-time tax cuts, many U.S. companies may choose to return their profits. Although the United States has the largest capital market in the world, it is difficult to digest the influx of large inflow capital in the short term. Coupled with the fact that companies are not using all of their repatriated funds to invest in production expansion in the United States, the already fickle US capital markets in the near term are likely to be more biased in the near term.

The transfer of these transnational flows also affects the foreign exchange market. A considerable part of the overseas profits of U.S. companies originally existed in the form of currencies such as Euro, Japanese yen, British pound and Swiss franc. If it is remitted to the United States, it will also bring the currencies to be sold during the exchange of U.S. dollars, resulting in abnormal market fluctuations and adversely affecting the financial stability of many markets.

  In some countries, the tax system may be affected

Second, the original tax system in some countries may also be hit by "tax bombs." As the United States reduces the corporate tax rate on a large scale, it will affect the industrial structure of some countries. Although there have been some "low-tax" places in the world for a long time, most small-scale economies are trying to attract capital and provide services. And once the United States, the world's largest economy, becomes a "low-tax land" and its original market advantage, it is likely to create a huge siphon effect that will attract some industries and enterprises to the United States. Because low tax rates will enhance the competitiveness of U.S. companies and encourage multinationals to increase their investment in the United States.

Before some manufacturing enterprises have moved to the United States, the United States tax cuts further increase their comparative advantages, and the affected countries all need to come up with countermeasures. Some countries with a similar industrial structure to the United States, such as Western European countries and Japan, are the most directly affected. In order to resist the power of the "tax bombs", they may have to follow up on the tax adjustment so as to prevent their enterprises from being attracted to tax breaks in the United States . In contrast, due to China's industrial structure and the United States are more complementary, so the impact of tax cuts by the United States is expected to be relatively small, and China implemented in recent years, a series of tax cuts measures to businesses, but also effectively hedge against this impact . However, as China's manufacturing industry climbs up the industrial chain, its cross-border with the United States will also increase its impact, so caution should be exercised.

  The "global tax tide" is not an inevitable result

Of course, the global wave of tax cuts is not an inevitable result. Taxes are not the only factor that determines your business. Low-cost funds, a highly qualified labor force, a stable supply chain, advanced technology, a sound regulatory system and a large market are also important conditions for enterprises to enhance their competitiveness. If we can improve our competitiveness in these areas, we will also be able to effectively resist the risk of capital and corporate outflows. Therefore, compared with the passive impact of Trump tax deduction, take the initiative to improve the market environment, to help businesses improve competitiveness is a better response.

                (Editor: DF010)

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