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Cryptocurrency News Articles

How Trump's Tax Cuts and Expansionary Fiscal Policy Could Prop Up the US Economy by Lowering Borrowing Costs

Mar 11, 2025 at 05:26 pm

Since taking office for the second time, President Donald Trump has been making headlines with his ambitious economic plans. Among them, his proposed tax cuts and expansionary fiscal policies have been the subject of much debate. But how exactly could these measures support the US economy by reducing borrowing costs? Let's take a closer look.

The Trump Tax Cuts: A Brief Overview

Trump's tax cut plan, which he first introduced in 2017, was one of the most significant pieces of tax legislation in recent US history. The Tax Cuts and Jobs Act (TCJA) slashed the corporate tax rate from 35% to 21%, provided tax relief for middle-class families, and doubled the standard deduction. The aim was to stimulate economic growth by putting more money back into the pockets of consumers and businesses, thereby encouraging spending and investment.

Now, as he enters his second term, Trump is looking to build on these tax cuts. He has proposed further tax reductions for businesses, including a plan to lower the corporate tax rate to 15% and exempt small businesses from paying income tax altogether. These measures, if implemented, could have a significant impact on the US economy.

Expansionary Fiscal Policy: Fueling Growth

In addition to tax cuts, Trump has also proposed an expansionary fiscal policy. This involves increasing government spending on infrastructure, defense, and other key areas. The idea is to boost economic growth by injecting more money into the economy, creating jobs, and stimulating demand.

The combination of tax cuts and increased government spending is a classic example of expansionary fiscal policy. By reducing taxes, businesses and consumers have more disposable income, which they can use to spend, save, or invest. At the same time, increased government spending on infrastructure projects can create jobs, improve productivity, and enhance the overall competitiveness of the economy.

Lowering Borrowing Costs: The Key Link

So, how do these tax cuts and expansionary fiscal policies tie into reducing borrowing costs? The answer lies in the relationship between the government's fiscal position, interest rates, and the broader economy.

When the government reduces taxes and increases spending, it typically runs a budget deficit. To finance this deficit, the government needs to borrow money by issuing bonds. As the supply of bonds in the market increases, the price of bonds tends to fall, and the yield (which is inversely related to the price) rises. This, in turn, can lead to higher interest rates across the economy, making it more expensive for businesses and consumers to borrow money.

However, Trump's economic team believes that the tax cuts and increased government spending will lead to higher economic growth. If this growth materializes, it could increase tax revenues, reducing the budget deficit over time. Additionally, higher economic growth can lead to increased demand for credit, which can put downward pressure on interest rates.

In other words, the hope is that the tax cuts and expansionary fiscal policy will stimulate the economy so much that the increased tax revenues and economic growth will offset the initial increase in the budget deficit. This, in turn, could lead to lower borrowing costs, making it easier and more affordable for businesses and consumers to borrow money to invest and spend.

The Potential Impact on the US Economy

If successful, Trump's tax cuts and expansionary fiscal policy could have several positive effects on the US economy. Lower borrowing costs could encourage businesses to invest in new equipment, expand their operations, and hire more workers. This, in turn, could lead to increased productivity, higher wages, and lower unemployment.

For consumers, lower borrowing costs could make it more affordable to buy a home, finance a car, or take out a loan for other big-ticket purchases. This could boost consumer spending, which is a major driver of the US economy.

Furthermore, the tax cuts could provide a much-needed boost to small businesses, which are the backbone of the US economy. By reducing their tax burden, small businesses would have more resources to invest in growth, hire employees, and contribute to the overall economic recovery.

The Challenges Ahead

Of course, there are also challenges and risks associated with Trump's economic plans. One of the main concerns is the potential impact on the budget deficit. If the tax cuts and increased government spending do not lead to the expected economic growth, the budget deficit could balloon, leading to higher debt levels and potentially higher interest rates in the long run.

Another challenge is the potential for inflation. If the economy overheats due to the increased spending and tax cuts, it could lead to higher prices, eroding the purchasing power of consumers and businesses.

Finally, there is the question of whether the tax cuts will be implemented in a way that benefits all Americans. Critics argue that the 2017 tax cuts disproportionately benefited the wealthy, and there are concerns that the proposed tax cuts could further exacerbate income inequality.

In conclusion, Trump's tax cuts and expansionary fiscal policy have the potential to support the US economy by reducing borrowing costs. However, the success of these measures will depend on a number of factors, including the ability to stimulate economic growth, manage the budget deficit, and ensure that the benefits are shared widely. As the debate continues, it will be important to closely monitor the impact of these policies on the US economy and its citizens.

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Other articles published on Mar 12, 2025

Cryptocurrency News Articles

How Trump's Tax Cuts and Expansionary Fiscal Policy Could Prop Up the US Economy by Lowering Borrowing Costs​ ​ ​ ​

How Trump's Tax Cuts and Expansionary Fiscal Policy Could Prop Up the US Economy by Lowering Borrowing Costs