In poll, economists say they expect Congress to pass tax cuts by Nov. 2018

They do not believe the cuts will do much to help economy next year

Aug 14, 2017 @ 2:11 pm

By Bloomberg News

The pros who make their living forecasting the economy overwhelmingly expect President Donald J. 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.

"The type of stimulus being talked about is temporary," said Nariman Behravesh, chief economist at consultants IHS Inc. "It won't deliver a sustained increase in growth."

Texas Representative Kevin Brady, the Republican chairman of the House Ways and Means Committee, said Friday that Congress is on track to deliver a tax bill to Trump in 2017. Brady, in a Bloomberg Television interview, acknowledged the goal is "aggressive" but said there's "urgency" in terms of the economy and U.S. competitiveness.

FED ACTION

As the administration aims to add fuel to the economy, the Federal Reserve is expected to be withdrawing it, according to the poll. Economists forecast that the central bank will raise interest rates once more this year and three times in 2018, each time by a quarter percentage point.

That's in line with Fed policy makers' own projections but significantly below levels implied in financial markets.

"To keep the economy on a sustainable path of growth, we need to gradually reduce the monetary stimulus put in place during the recession and recovery," San Francisco Fed President John Williams said in an Aug. 2 speech in Las Vegas. "If we delay too long, the economy will eventually overheat, causing inflation or other imbalances to emerge."

Policy makers last increased borrowing costs in June, when they boosted the target range for the inter-bank federal funds rate to a range of 1 percent to 1.25 percent.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

Do you remember your first client?

Advisers remember their very first client. As the next generation enters the workforce, they want to hear advice from the experts. Our student correspondent, Kaylyn Adams, hits the IMPACT floor.

Latest news & opinion

Meet our 2017 Women to Watch

Introducing 20 female financial advisers and industry executives who are distinguished leaders, advancing the business of providing advice through their creativity and hard work.

Raymond James executives call on industry to keep broker protocol

Also ask firms to pay for the administration of the protocol to 'ensure its longevity and relevance.'

Senate committee approves tax plan but full passage not assured

Several Republican senators expressed reservations about the bill, and the GOP cannot afford too many defections.

House passes tax bill, focus turns to Senate

Tax reform legislation expected to have more of a challenge in upper chamber.

SEC enforcement of advisers drops in Trump era

The agency pursued 82 cases against advisers and firms in fiscal year 2017, down from 98 the previous year.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print