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Sustained Growth? How Trump's New Tax Plan Could Influence the US Economy

© REUTERS / Mike BlakeA tax preparation office is pictured in Los Angeles, California, U.S., April 26, 2017
A tax preparation office is pictured in Los Angeles, California, U.S., April 26, 2017 - Sputnik International
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The Trump administration's proposed tax cut may fail to contribute to sustainable economic growth in the US, Robert Willens, an independent tax consultant, told Sputnik.

Republican presidential hopeful Donald Trump announces his tax plan during a press conference at Trump Tower in New York on September 28, 2015 - Sputnik International
A Gift to Corporations: Trump Announces 'Biggest Tax Cut in US History'
In an interview with Sputnik, independent tax consultant Robert Willens, who was a Managing Director in the Equity Research department at Lehman Brothers, Inc. for 20 years, said that the proposed cut in the US tax rate would not necessarily boost the country's economic growth rate.

The interview came after the White House released a one-page plan on comprehensive tax reforms which are said to simplify the federal tax code by cutting rates and eliminating deductions.

The outlined changes were announced by Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn during a White House press briefing on Wednesday. Under the plan, the federal income tax will be cut from 35 to 15 percent for corporations, small businesses, and partnerships of all sizes.

The reforms would also double the standard deduction Americans are able to claim on their tax returns. Speaking to reporters, Cohn said that the proposals would reduce the number of US tax brackets from seven to three.

His comments were echoed by Treasury Secretary Steven Mnuchin, who said that the plan would include the biggest tax cut in US history with the aim of spurring economic growth.

Meanwhile, some economists have raised concerns, saying the changes may add trillions of dollars to the US deficit over the next decade.

"Generally speaking, the most important changes, in my view, are related to the corporate tax rate,which was slashed from 35 percent to 15 percent, something that will in particular prompt the companies to be more honest about their actual location," Robert Willens, for his part, said referring to the companies outside the US and their handling of tax-related issues.

Touching upon predictions pertaining to sustainable US economic growth thanks to the proposed tax cuts, Willens remained downbeat, citing history, which he said "is not favorable" to such moves.

"History has shown that it usually does not work. Typically, tax cuts do not spur quite as much [economic] growth as was expected," he said; Willens warned that "at the end of the day, the budget deficit may increase" and that despite the hope that "this time it will be different, the economic growth will never materialize to the extent they hoped it would."

Willens was echoed by financial policy analyst Daniel Sankey, who told Sputnik that "what you are hearing from Trump and Steven Mnuchin… is that essentially the huge tax cut will pay for itself through economic growth…"

"The reality is that we would need a sustained growth rate of approximately 5 percent to make up that 2.4 trillion, and we haven't had that sort of growth rate for a very long time, at least not in a sustained way," Sankey explained.

 

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