Torsten Slok from Apollo Global Management says the key issue with the new U.S. budget is that it's an extension of tax cuts that were already in place, so the boost to GDP growth and inflation from the bill itself will be very limited.

Washington

Economist Torsten Slok from Apollo Global Management has stated that the recently enacted US budget bill, which primarily extends tax cuts already in place, will not provide significant new stimulus to the economy. According to Slok, estimates from the Tax Foundation, Peterson Institute, and Congressional Budget Office indicate that any positive impact on GDP will be delayed and limited.

Slok explained that while the bill increases the federal deficit, it does not offer additional growth in GDP, consumption, or capital expenditure, as corporate tax rates remain largely unchanged. He also noted that ongoing trade uncertainties may further dampen any potential benefits from the fiscal measures.

Trump's big beautiful bill will add to U.S. deficit: Economist

Let's talk about the fiscal side, the big beautiful bill, all right, CHOP stamped its law now. How stimulative is it going to be? The initial read is it's not going to be as stimulative as originally thought or rather feared and therefore not as inflationary as originally feared. Yeah, so the key issue with the one bill from a fiscal perspective is, of course, that it's an extension of tax cuts that were already in place. So in that sense, that's not adding new GDP stimulus. So that's why estimates from the Tax Foundation, from the Peterson Institute, also from the CBO suggest that it's going to be more delayed, the positive impact on GDP as a result of the one big beautiful bill. So the headline number looks big, but in terms of the impact on the economy, it's actually much smaller simply because the headline number of the deficit is mainly because of an extension of a tax cut that was already in place. So in other words, if your tax rate was say 35%, then it will also be 35% next year. So in that sense, it does not give you any extra GDP growth, no extra consumption or capex spending as a result of that. So yes, the big beautiful bill is going to add to the deficit, but at the same time, it is also not going to add too much to GDP growth and inflation. So 35% corporate tax rate, that's going to be a big disappointment for markets, right? Because on the outside, at least the expectation and hope had been, OK, maybe not full fat 15%, right? But maybe somewhere in between 19, 20%. But if we're going to stay at 35, I mean, earnings aren't going to like that. So that's why for corporates, we have a tax rate that has come down. So that's as we speak about 21. And that will also be roughly about 21 next year. 35 would be, for example, on households. So that's why the lower tax on corporates is not going to be additionally stimulative. So that's a very important point you're making here, Nemi, that this is not going to add any additional impact on capex spending as such. And in particular, if this comes at a time where corporates are probably less focused on their taxes in the CFO office and probably more focused on tariffs and what's going on in their production floor. And therefore, what will be the price of imports? What's the price of inputs into their production? And if all the uncertainty is now around the production and imports and exports and what's going on on the uncertainty side, then it may also be that some of even the benefits that come from the better numbers, meaning on GDP, when it comes from the tax or fiscal side, could be overwhelmed by some of the negative effects coming associated with trade war uncertainty. Oh, dear.

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