Intriguing shifts are underway in both the American and global economies. According to analysts at BCA Research, the most effective strategy for overhauling the US economy, and by extension the global one, would be a combination of tax hikes and spending cuts. A bold mix indeed.
Despite President Donald Trump's occasional rhetoric about increasing taxes on high-income earners, the likelihood of that plan becoming a reality remains uncertain. BCA analysts noted that while such a fiscal overhaul could provide the most reliable path forward, Republicans currently lack the votes needed to implement it, making sweeping tax increases and deeper fiscal tightening unlikely.
Political realities further complicate the adoption of such reforms. Moreover, Trump’s broad fiscal strategy is unlikely to narrow the deficit. According to BCA Research, his signature legislative package is expected to lock in a hefty federal budget deficit ranging between 7% and 8% of GDP.
Analysts added that while tariffs may generate a short-term drag of about 1% of GDP, a so-called fiscal bump could materialize by 2026, contributing up to 1.7% of GDP.
BCA Research concluded that near-term economic prospects are likely to face headwinds from rising tariffs and bond yields, yet the firm believes that some version of Trump’s fiscal package is still expected to be enacted. Still, while the president’s policies may drive the deficit higher, they cautioned that these moves are more likely to generate economic friction than to produce meaningful structural reform.
