In the simplest view, the new tax law will result in more after-tax income for most American households, beginning in February, when employers start using the new payroll withholding tables. Longer term, those cuts could disappear after 2025, but for 2018 at least, most workers’ take-home pay will see some increase.
According to a recently released report from JPMorgan, tax cuts for individuals in 2018 will total approximately $100 billion, and it assumes 60 percent of that amount will flow into higher consumer spending. The result could be a gain of 0.3 percent to real GDP growth in 2018.
It’s possible that the economic impact could be higher, if more consumer spending leads to rising growth, increased employment and higher wages. However, those trends could also cause the Federal Reserve to increase interest rates faster than most analysts now expect if inflation rises more than forecast in 2018. Those reactions would be a headwind for the economy.
The other major leg of the tax overhaul is the reduction of the U.S. corporate tax rate to 21 percent from 35 percent. The net benefit for businesses in 2018 is projected to be approximately $80 billion, about half of which could be spent on capital spending for new buildings, equipment and so on, and on labor — hiring new workers and raising wages.
In this scenario, the other half would be spent on share buybacks and dividend increases. These benefits could add another 0.3 percent in real GDP growth in 2018. Read more from cbsnews.com…
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