THE HINDU Editorial Vocabulary-May 1, 2017- Topic 2

Mr. Trump’s tax cut

U.S. President Donald Trump’s tax plan, released as a brief one-page document this week, promises some bold reforms to rejuvenate America’s sluggish economy. Weak private investment spending has been at the heart of what is now dubbed the slowest U.S. economic recovery in the post-War era, which has been coupled with a serious slump in productivity. 

The plan does well in attempting to address basic structural problems that have held back the American private sector. However, its eventual success in reviving growth and productivity will depend on the extent to which its benefits trickle down from the balance sheets of big business to the real economy. The Trump administration has proposed steep cuts to the corporate tax rate (from 35% to just 15%), a significant reduction and simplification of the individual income tax, a doubling of standard tax deductions, and the scrapping of the wealth tax and the alternative minimum tax. Notably, the earlier proposal to impose a protectionist border adjustment tax has also been shelved, hopefully due to the administration’s realisation that trade tariffs don’t come with a zero cost on Americans. It is estimated that U.S. corporations have stacked a cash pile of more than $1.8 trillion overseas to avoid the corporate income tax. Mr. Trump hopes to push them to repatriate some of this cash stock after paying a minimal one-time tax.

Whether the likely inflow of capital will incentivise U.S. corporations to increase investments, or simply distribute the cash to shareholders through buybacks and dividends is an open question. In this context, another relevant issue is the administration’s own spending plans. The cut in the corporate tax alone is estimated to cost over $2 trillion, and overall the plan could lead to anywhere between $3 trillion and $7 trillion in lost revenue over the next 10 years. Whether the Trump administration will walk back on its initial promise to adopt a tax plan that is revenue and deficit neutral or cut down on spending to match lower revenues remains to be seen. Most recently, U.S. Treasury Secretary Steven Mnuchin argued that higher growth will help compensate for the revenue loss from tax cuts, suggesting a spending cut may not be on the cards. Mr. Trump’s bullish stance on infrastructure and military spending also suggests he is unlikely to reduce spending. This means that the real disposable income of Americans won’t receive any significant boost in the near term. Further, productivity improvements in the long run require improvements in general business freedom as well, not just tax cuts. Lastly, of course, Mr. Trump’s tax plan will require the approval of a Republican-dominated Congress that is filled with deficit hawks.

Vocabulary

Rejuvenate: make someone or something look or feel younger, fresher, or more lively.

Example: A bid to rejuvenate the town center

Synonyms: revive, revitalize, regenerate, breathe new life into, revivify

Sluggish: slow-moving or inactive.

Example: A sluggish stream

Synonyms: inactive, quiet, slow, slack, flat, depressed, stagnant

Slump: a sudden severe or prolonged fall in the price, value, or amount of something.

Example: A slump in annual profits

Synonyms: drop, tumble, downturn, downswing, slide, decline, decrease

Eventual: occurring at the end of or as a result of a series of events; final; ultimate.

Example: It's impossible to predict the eventual outcome of the competition

Synonyms: final, ultimate, concluding, closing, end, resulting, ensuing

Shelved: decide not to proceed with a project or plan, either temporarily or permanently.

Example: Plans to reopen the school have been shelved

Synonyms: postpone, put off, delay, defer, put back, reschedule, hold over/off

Compensate: give someone something, typically money, in recognition of loss, suffering, or injury incurred; recompense.

Example: Payments were made to farmers to compensate them for cuts in subsidies

Synonyms: recompense, repay, pay back, reimburse, remunerate, recoup

Bullish: confident or optimistic about something.

Example: Those who are bullish on the nation's economic prospects

Synonyms: confident, positive, assertive, self-assertive, assured

Disposable: readily available for the owner's use as required.

Example: He made a mental inventory of his disposable assets

Synonyms: available, usable, spendable

Hawk: a person who advocates an aggressive or warlike policy, especially in foreign affairs.

Example: Americans may indeed be well served externally at this dangerous juncture by the unsentimental foreign policy hawks that tend to predominate in the Republican Party.