Investing.com -- The most effective strategy for reshaping the U.S. and global economy is a combination of higher taxes and lower government spending, according to BCA Research in a note Friday.
The firm said that despite occasional rhetoric from President Donald Trump about raising taxes on high-income earners, the path to meaningful fiscal reform remains politically blocked.
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“The surest way for the U.S. to restructure the domestic and global economy is to raise taxes as well as cut spending,” BCA analysts wrote. However, they note that “Republicans lack the votes to pass tax hikes,” making significant fiscal tightening unlikely.
BCA noted that Trump has suggested he “would support a tax hike on the highest income earners.”
Still, political reality makes such measures difficult to enact, and his broader fiscal strategy is unlikely to reverse deficit expansion.
Trump’s “signature law will maintain large budget deficits of around 7%-8% of GDP,” BCA said.
The think tank predicts that while tariffs could produce a short-term “fiscal drag of 1% of GDP,” the following year could see a “fiscal thrust in 2026 [that] would reach as high as 1.7% of GDP.”
While the near-term economic outlook includes headwinds from “higher tariffs and bond yields,” BCA expects that a version of Trump’s fiscal package “is guaranteed to pass, – but higher bond yields and inflation will weigh on the economy and stock market.”
In short, BCA concludes that while Trump’s fiscal policy is “surprising to the upside with budget deficits,” it may ultimately generate economic friction rather than structural reform.
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