What to expect from tax cuts and jobs act

February 27, 2018

The Tax Cuts and Jobs Act, approved by Congress in the last days of 2017, substantially reforms the tax code and, in the aggregate, reduces taxes for U.S. corporations and households by $1.5 trillion over the next ten years, the equivalent of slightly less than 1% of GDP a year.

It has generated a lively debate on how these cuts may benefit the U.S. economy. How much of a boost to GDP can we expect in the next couple of years and the medium-term? Will it lead to higher inflation and a faster-than-expected monetary tightening by the Federal Reserve? How much will the U.S. debt increase? What does it all imply for shareholders and more broadly for financial markets? Most of the answers to these questions depend on what corporations, which are seeing the first major income tax cut in 20 years, will do with the higher after-tax profits.