AXA IM: Allowing more carbon emissions to pay for Trump's tax cutting plans

AXA IM: Allowing more carbon emissions to pay for Trump's tax cutting plans

November 19, 2024

Energy Transition United States Politics
Klimaat (02) CO2

Trump’s tax cuts programme cannot be even partly funded without roll-back of the Inflation Reduction Act (IRA) and tariffs, according to Gilles Moëc, AXA Group Chief Economist and Head of AXA IM Research. He expects that Trump can offer some interesting concessions on green spending to Congress to get his tax projects through.

The fiscal projects may be the most fragile part of the new Trump administration, Moëc says adding that there is clearly an awareness around the Preisdent-elect of the need to reassure on the deficit front. In this week's Macrocast, he looks into how the savings from rolling back the IRA, combined with tariffs, could plug some of the hole the extension of Tax Cuts and Jobs Act (TCJA) and the exemption of social security benefits would drill in the US budget. 

Accoring to Moëc, the tax cuts would be paid partly by more carbon emissions by removing the EV tax credit and trade tarriffs. 'It would be a mistake to consider the Trump administration’s key economic proposals on the green transition and international trade as purely ideologically motivated. Ideology matters, of course. But there is also a 'fiscal expediency' aspect to them which we think is somewhat lost in the current debate on the extent to which Trumpnomics 2.0 will be implemented. Take out the removal of the EV tax credit and the hike in customs duties from the frame, and the chances to get the Republican agenda on tax cuts through would significantly fall. This must be kept in mind when hearing all those who have been arguing that 'Donald Trump will mellow'. In effect, the project consists in paying for tax cuts by allowing more carbon emissions.'

'This gets us to a very simple point when it comes to the market reaction: if investors believe that the new administration will not go as far as what the platform implies, because Donald Trump will want to preserve the equity rally, then they also must accept that, should he not roll back on the IRA nor hike tariffs significantly, he probably won’t be able to give them all the 'sugar rush' they expect in terms of tax cuts ahead,' Moëc concludes.

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