Tax reform expected to go into effect immediately

Boost to economy likely temporary

The Trump administration tax reform package — just passed the House, on to the Senate — is widely expected to pass this week and the Treasury is indicating it will start accepting the new changes to paychecks in 2018.

“The president has said he is ready to sign tax reform legislation into law "within hours of passing,” touting tax cuts as a Christmas present for the American people,” predicts Lindsey Piegza, chief economist at Stifel.

Critics of the reform package say the burden will be too great to put the plan in place by the April deadline, but “Treasury Secretary Steven Mnuchin has suggested that the IRS will be ready to process the new tax forms in February and, in any case, the cuts will be back-dated to 1st January,” said Andrew Hunter, U.S. economist at Capital Economics, in an email to clients.

“Accordingly, our long-standing forecast that a fiscal stimulus would give a boost to GDP growth in early 2018 looks like it will prove to be correct,” he adds.

After 2018, Hunter predicts the economy will slow as the tax boost wears off and higher paid Americans chose to save their money instead of spending:

"Although there will be a modest stimulus in 2018, the bill could prove a drag on the economy further ahead. The 2019 repeal of the Obamacare individual mandate, which forces healthy people to buy insurance, would save the Federal government $340bn over a decade but also lead to higher premiums and a sharp rise in the number of uninsured Americans. The Republicans have promised accompanying legislation to stabilise the insurance markets but, with little progress so far, this could be a big drag on real health care spending over the coming years. This is further reason to think that, as the temporary boost from the tax cuts fades and higher interest rates start to take their toll, the economy will slow in 2019."

3d rendering of a row of luxury townhouses along a street

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