Drew Rodgers

I live in Norway with my wife, Inger, and our cat T.J. Maxx and teach International Business Communications at Oslo University College School of Business.

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A Prediction

Ok, I am not an ecomist, but I did teach International Business Communications at a school of business here in Norway where I had access to professors of finance. So take what I have to say knowing its origin.

The Trump tax reform will have the following impact. First, 60% of the benefits will go to the upper uppers. Through individual deduction increases, some middle class members will benefit, but many will not (see “Trump’s Tax Plan” below). But these increases will expire in 2025 in order to make corporate tax cuts permanent. Then there is the repeal of the individual mandate. It is estimated that 13 million Americans will lose their health insurance and premiums will increase by 10% by 2025. The premium increase is due to “healthy” people exiting the insurance pool leaving the less healthy to pick up the slack.

Now to the illusion that the corporate tax rate was 35%. Due to generous deductions and tax loop holes, the average corporate tax rate was between 13 to 21%. With the new base tax rate of 21% rate and many of the loop holes still remaining, the corporate tax rate will be, what?, 10% or so. And what will corporation do with all this money? Increase jobs? Probably not as they have enough money to do that already. A survey of CEO’s showed that they had no plans to increase the work force or salaries. Their plan is to buy back stock, thus increasing its value, and increase dividends, thus favoring the upper uppers.

What about the economic impact? Increasing the national debt by an estimatedl $1-1.5 would be devastating. Even if the economy expands by the 3-4% which Republicans claim, the increase in the national debt will be $1 trillion. And by the way, neither most economists, the Fed nor Wall Street see this as realistic. They see only a maximum growth of 2.5%. Now we come to servicing the debt which is one of the largest items on the federal budget. Interest rates are already rising and if the economy expands and people start spending more, then rising inflation will have to counteracted by raising interest rates. This will hurt both homeowners and the federal government.

So to my predictions. The American people are becoming more skeptical to the benefits of the tax plan. 55% are negative and the opposition is rapidly rising. By 2018, the middle class will probably be acutely aware that they have been duped. The Senate will change hands and maybe even the House. Remember what happened to Barack Obama in a mid-term election and his approval rating was not at 35%. The greater concern is the impact on the national debt. In the next ten years, will it reach a level of say $23 trillion or higher (estimates vary) and will interest rates be at say 5-7%? In the worst case scenario, will the U.S. be technically bankrupt? Possibly.

And finally, will people take to the streets? Stay tuned.

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