Beyond everything else, the timing of the Tax Cuts and Jobs Act of 2017 could work against it. Today’s economy doesn’t need much help. The unemployment rate is at a 17-year low of 4.1 percent. Many employers are already complaining that they can’t find enough qualified workers. And in a vote of confidence in the economy, the Federal Reserve has just raised short-term interest rates for the third time this year.
So a stimulus from a big tax cut could overheat the economy and potentially ignite inflation.
“You throw deficit-financed tax cuts on a full-employment economy, and you’re playing with fire,” says Mark Zandi, chief economist at Moody’s Analytics. “It’s going to get pretty toasty out there this time next year.”
The Fed could respond by raising rates even faster to slow economic growth, offsetting the tax cuts. But the unintended result could be not much growth at all.
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