Bridgewater’s Dalio Warns “There’s A War Going On… And Taxes Won’t Help”

Thursday, December 21, 2017
By Paul Martin

by Tyler Durden
Dec 21, 2017

The founder and CEO of Bridgewater, the world’s largest hedge fund, was not exactly cock-a-hoop about Trump’s tax reform plan ahead of this week’s successful vote, and now that the details are out, Ray Dalio explains why the tax changes don’t do what’s needed to help America…

When we look at the tax plan holistically, it looks to me like it’s a short-term minor boost to the economy that will have some minor positive longer-term impacts, but by and large it doesn’t deal with the impediments that are holding back investment and productivity in the US economy, and it won’t have any notable effect on our biggest economic, social, and political issue, which is the conditions of the bottom 60% and the growing disparity with the top 40% (especially the growing disparity between the bottom 90% and the top 10%).

In the short term, the tax law changes and regulatory reductions will provide a very modest one-time boost to after-tax incomes that will be stimulative.

How “good” the tax law changes are depends on one’s own perspective because some things will benefit and hurt some people more than others—but, net, it won’t be big.

For example, it will typically move after-tax incomes by about 0.5% in total, which will be made up for by a nearly comparable increase in the budget deficit (which doesn’t come at no cost).

The reforms to the structure of corporate taxes at the core of the bill will certainly make the US a more attractive environment to do business, but the impact of those changes is likely to be small relative to the improvement that could be achieved by investing more in things like infrastructure and education, which more directly boost productivity (see for our full studies on what makes economies succeed and fail). To help convey the issue about infrastructure spending, the table below shows how US infrastructure compares to other developed countries (from the World Economic Forum)—i.e., it shows how the US lags significantly in rail and internet speeds, and is more middling in road infrastructure. Our infrastructure is in desperate need of improvement.

The Rest…HERE

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