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Two weeks ago, the Trump administration presented a detailed version of one of Trump’s most important election promises: a tax reform. Not only does the Trump administration propose to lower corporate taxes, their proposal also includes other tax reforms. However, the trouble is that Trump wants to lower taxes without cutting spending. As a result, the budget deficit and the enormous public debt are bound to swell. And, moreover, what does all this have to do with the Federal Reserve?

A Breakdown of Trump’s Tax Proposal

The Laffer Curve

Source: Forbes

Consequences for the Deficit and Public Debt

SOURCE: UFM MARKET TRENDS US Q3 REPORT. DATA MODIFIED BY THE AUTHOR; PROJECTED FUTURE DEFICITS AFTER TRUMP’S TAX REFORM: URBAN-BROOKINGS TAX POLICY CENTER (TPC) <sup>[1]</sup> . BASELINE PROJECTIONS OF NOMINAL GDP GROWTH: CONGRESSIONAL BUDGET OFFICE, “THE BUDGET AND ECONOMIC OUTLOOK: 2017 TO 2017“, ST LOUIS FED.

Consequences for the Fed and Inflation?

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