US: Fiscal stimulus looming - NAB

Tony Kelly, Senior Economist at NAB, points out that both the US House of Representatives and the Senate recently passed bills to cut US taxes by around $1.4 trillion over a ten year period.

Key Quotes

“At their peak, both the House and Senate versions incorporate tax changes that would lead to a decline in revenue of just over 1% of GDP.” 

“There are differences between the two sets of legislation that need to be reconciled through a committee process. House and Senate Republicans appear to have agreed on a compromise bill and the intention, at the time of writing, is for a vote on the legislation next week. Passage appears likely but not certain as it would take only a few defections of Republican senators to prevent passage.”

“Both the Senate and House packages were projected to lead to lower revenue from individual and domestic business operations, and increased revenue from international tax changes. In terms of the fiscal impact a major difference between the two versions was the timing of the corporate tax cut which the House had starting in January 2018 and the Senate version a year later. Reports indicate that under the compromise version the corporate cuts will start from January 2018, so we have illustrated the magnitudes of the changes in the chart below using the House plan.”

“Our assumption has been that there would be a fiscal stimulus of around 1% of GDP in calendar 2018. The House version has an approximate calendar year fiscal impact of around 0.8% GDP in 2018 (rising to 1.1% in 2019) so we look like we are in the right ball park. Given this, we have not changed our assumption for the amount of fiscal stimulus but will review it when more details of the reported compromise version, including cost estimates, become available.”