The tax cuts initiated by Donald Trump maximize US government debt and brought US banks $32 billion more profit in two years. As a reward, they tear up his trade agreement with China in the air!
Donald Trump appeared as the little man’s advocate during the election campaign. Many of the lost hoped he would do more for the less privileged. More for workers in struggling industries and less for the financial industry than his predecessors. In interviews, some of his followers expressed the hope that as a billionaire he was incorruptible and would therefore represent their interests uncompromisingly. Things turned out differently. Trump as a billionaire put together a ministerial squad that could probably not be further removed from the concerns of the little man. Foreign Minister became the head of one of the largest oil companies in the world. Treasury Secretary became a former employee of Goldman Sachs again. Secretary of Defense is now an ex-vice president of the US Aerospace Lobby Association.
Minister of the Interior is an ex-lobbyist for the mining and oil industry. Minister of Trade is an industrialist. The minister for Health is a man who first acquired shares in a medical technology company, then delayed a law harmful to the company. As a reward he received a campaign donation from that same company. The new Health Minister was president of an Eli Lilly subsidiary, one of the largest pharmaceutical companies in the world. Secretary of Transportation is a former vice president of the Bank of America. Energy Secretary is a former vice president of Ford, who subsequently served as vice president of a financial services company. Education Secretary is a five times billionaire whose husband made a fortune in network marketing.
Lower taxes, increase defence budget, make gifts to banks – that is Donald Trump’s balance sheet
Given these cabinet appointments, it is not surprising that Trump’s actions did little for the little man, but a lot for business and the wealthy people. The defence budget was increased by USD 100 billion, while at the same time many other budgets were cut. Taxes were cut, especially for the wealthy people. And because that wasn’t enough, companies were also given tax cuts right away. This increased the expenditure gap in the federal budget.
Trump’s campaign promise to reduce the US national debt from 19 trillion US Dollars to 0 within eight years will probably not be fulfilled. So far, the debt has risen to 21 trillion US Dollars. Some projections show that with the current expenditure and revenue plans, the debt will rise to 29 trillion US Dollars by 2024. That is $1.25 trillion of new debt per year. More than half of that will go to the military. Not to the small, disconnected man in disconnected areas in disconnected industries.
It was clear from the outset that a tax cut devised by an ex-Goldman banker would not leave US banks unaffected. In the meantime, it has become clear how much the US banks will benefit. In just two years, the tax savings of the six largest banks in the USA will add up to no less than 32 billion US Dollars. Another reason for the tax cuts for banks was that the banks could cut interest rates, issue more loans and thus stimulate investment. But things turned out differently. Despite the 32 billion US Dollars in tax savings, the growth rate of outstanding loans was cut by two thirds. Most recently, it was growing at a rate of only 1% per year. In return, the six banks together laid off 1200 employees and increased dividends by 21.5 billion US Dollars. A small part of the 120 billion US Dollar profits that were made in 2019.
Instead of granting loans more often, the banks did the opposite!
Since the tax cuts, which will burden the national budget for some time to come, will not provide any impetus for growth, Trump will certainly point to other successes in his election campaign. For him, stock prices are a measure of his success as president. And indeed, they have risen since his election. But even that is hardly a consequence of his government actions, but rather the market reaction to trillion-Dollar stimuli from the central banks. First and foremost the Fed, which in recent months has expanded its balance sheet total as strongly as it did during the financial crisis.
He will also refer to the trade agreement with China, which in practice keeps important figures under wraps. These figures could be used to measure the actual achievements in the future. The chief economists of the major banks that Trump has given tax cuts as a gift to the US economy do not expect the trade agreement to have any measurable impact on the US economy. They expect growth of only 1.9% this year, compared with 1.9% in 2019. Trump is likely to be disappointed with this assessment. Why did he give away 32 billion when in the end there is such a smack from the donors for his trade policy?