Trumps tax reform plan is a confusing package of proposals. There are no details yet on the details of the proposed changes, but there are several vague proposals to make the tax system more fair. These include tax relief for families with child care expenses and the elimination of targeted tax breaks that mainly benefit the rich. National Economic Director Gary Cohn has hinted that the plan will eliminate many individual deductions and state and local tax deductions. Both these measures would create revenue.
Jobs
President Trump’s recent tax overhaul is largely being hailed by businesses, but the impact on workers may not be as strong as the president says. A National Association of Business Economics survey found that 84% of businesses had not accelerated hiring as a result of the new tax code, despite Trump’s claims. While the lower corporate tax rate is a permanent change to the U.S. tax code, individual tax rates are scheduled to return to pre-TCJA levels in 2025. This means that workers could see a tax increase in five years. In addition, Democrats and nonprofit organizations had predicted that Trump’s tax reform would not create significant jobs, and the benefits would only go to the wealthy.
Although there are no concrete evidence that the new tax law will create many new jobs, recent trends in the economy suggest that the tax cut is working. The unemployment rate has fallen to its lowest level in half a century, according to the U.S. Bureau of Labor Statistics. Meanwhile, GDP growth has been steady since 2010, according to preliminary data from the U.S. Bureau of Economic Analysis. However, there is a need for revenue-raising tax reform.
Wages
While many economists claim that the new tax law has increased wages, the real effect is difficult to measure. Many corporations announced one-time bonuses for employees shortly after the law passed, but these bonuses have not been reported since the end of 2017. But the tax law did spur investments, which should eventually result in higher wages. The following are some of the economic benefits of the tax reform. While the effects of the new law are limited, they are still positive for the economy.
The new tax law has lowered the corporate tax rate from 37% to 21%, the largest rate cut in US history. The president claimed in one speech that this would mean a $4,000 wage increase for workers. While this is not a guarantee, it was enough to sway citizens into supporting the tax reform. While the new tax law promised higher wages, it actually put $150 billion in corporations’ pockets in 2018. Many of this money went into corporate stock buybacks and shareholder dividends. The resulting cash lining the pockets of the 10% of Americans who own 84% of stock were a result of Trump’s tax reform.
Business innovation
Business innovation under Trump’s tax reform will create more jobs, spur economic growth, and lower corporate taxes. However, these changes will not come overnight. House Republicans are planning to roll out a second round of tax cuts this summer, including a capital gains tax cut and incentives to stimulate business innovation. House Ways and Means Committee Chairman Kevin Brady anticipates the bill will be approved in the summer. President Trump is also planning to end the exemption of the Treasury Department from OMB review since 1980.
Despite the pro-growth objectives of Trump’s plan, many people are still skeptical. While it may not be perfect, the new tax code does accomplish important objectives. These include increased international competitiveness, lower corporate taxes, and immediate full business expensing. However, if the proposed reform can be implemented as a permanent change, the results will be beneficial to American businesses. And if the tax reform is permanent, it will allow businesses to make long-term decisions, which will help them meet the three goals of the president.
Corporate tax cuts
The Trump administration is promising billions of dollars in new investment opportunities in return for a massive tax cut. Yet an ATF review shows that many of these investments are nothing new at all. Three companies alone are pledging $487 billion in “new investments” as a result of the tax cuts. The companies are Apple, Comcast, and ExxonMobil. While the tax cuts are intended to be beneficial for businesses, they aren’t necessarily beneficial to workers.
The corporate tax cut was sold to Congress and the skeptical American public as a way to reduce the deficit and boost worker wages. It was claimed that cutting the corporate tax rate would result in higher wages and better jobs for workers, since the vast majority of companies pay the highest taxes. In theory, this would increase the after-tax returns for corporations, spur massive investment spending, and increase the overall productivity of U.S. workers. In reality, the corporate tax cuts will do the opposite.
Alternative minimum tax
The Tax Cuts and Jobs Act (TCJA) contains provisions that will make the Alternative Minimum Tax (AMT) less harmful to high-income individuals and families. The AMT is a second tax system that reduces taxpayers’ ability to evade taxes. Under this system, a taxpayer’s tax liability equals the amount of regular tax liability plus an additional 2 percent AMT liability. The new tax law will limit the AMT’s scope to those individuals and couples with incomes over a certain amount.
The AMT was originally created in the late 1960s, when 150 people were paying no federal income tax at all. They used deductions and failed to claim some kinds of income. This practice made low-income taxpayers feel cheated. This resulted in Congress passing the minimum tax. The current version of the AMT went into effect in 1982, and has undergone several touch-ups since then.
