Goldman Sachs finds tax cuts insufficient to counteract tariff impact
- Goldman Sachs analysis indicates proposed tax cuts exceed previous expectations, aiming for a growth boost.
- However, the negative impact from tariffs will counteract these growth benefits, worsening fiscal outlook.
- Consequently, the analysis raises concerns about federal revenue and ongoing budget deficits.
In a recent analysis published by Goldman Sachs, the economic implications of a tax cut package proposed by House Republicans were examined. The report highlights that, despite being larger than initially expected, the tax cuts will not be enough to counterbalance the negative effects on economic growth triggered by tariffs. Economists led by Jan Hatzius noted that the anticipated tax cuts could add approximately 0.1% to 0.2% to the GDP over the next few years. However, this growth is challenged by the drag on economic advancement induced by tariffs. The analysis indicates that while the fiscal package includes provisions for net individual income tax deductions and incentives for business investments, which could positively influence growth in 2026 and 2027, these benefits will be outweighed by the detrimental impact of tariffs. The House fiscal package is expected to widen budget deficits, with projections estimating a 0.4% increase in GDP relative to current policies in the coming years. In contrast, tariff revenues are expected to exceed this increase, bolstering the budget. Tariffs are projected to generate significant revenue, with economists predicting a rise of approximately 1.25% of GDP due to increased tariff rates on goods imports. Nevertheless, factors such as diminished expectations for other revenue streams due to the growth slowdown from tariffs mean the overall federal revenue increase may not be as substantial as initially thought. The broader fiscal context is underscored by increased budget deficits leading to a surge in national debt, which prompted downgrades by major credit rating agencies like Moody's. Their recent downgrade of U.S. credit ratings was influenced by ongoing fiscal challenges, highlighting concerns regarding governance and the sustainability of managing national debt. Goldman Sachs pointed out that even though the fiscal measures proposed are impactful, they will not sufficiently mitigate the adverse effects on growth attributable to tariff policies.