In 2017, Congress passed the tax cuts that President Trump advocated. What effect did this policy likely have on the U.S. trade deficit? Why?

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In 2017, Congress passed the tax cuts that President Trump advocated. What effect did this policy likely have on the U.S. trade deficit? Why?

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In 2017, Congress passed the tax cuts that President Trump advocated. What effect did this policy likely have on the U.S. trade deficit? Why?

Answer & Explanation (1)

Explanation
Tax cuts increase the disposable income of the citizens and companies, high disposable income leads to a high rate of consumption because they have more money. The firms get high profits because of a reduction in the corporate taxes, because of this, they increase their production activities by creating more jobs, supply of new products, and further investment. Job creation reduces the unemployment rate and increases the taxes collected by the state and Federal Government. As household consumption increases it leads to an increase in demand for goods and services and since most of the goods and services are attached with a certain tax rate it means the tax collection increases. When a government experiences a deficit the deficit management plan should base on economic progress, thus why tax cuts were advocated by Trump. The government collects more taxes because the economy expanded, this increases the Real GDP which reflects a reduction in the U.S trade deficit because they will be able to export more as the exchange rate stabilizes, the prices of goods reduce to attract foreign demand.

Answer
Tax cuts are an expansionary fiscal policy with an intention of stimulating the entire economy in all states.

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