An of business credits and deductions, including

An analysis of
macroeconomic effects

of Trump’s tax plan

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for

Mr. Jeff Shmidl

Global Economic Issues
Instructor

Laramie County
Community College

Cheyenne, WY

 

 

 

by

Tamara Allison

 

 

December 5, 2017

 

 

 

 

 

Table of
Contents

Abstract

Introduction

            Background

Collected Data

            First
topic: Economic Production

            Second topic: Economic
Well-being & Unemployment

            Third topic: Cultural Complexities

Conclusion

            Overall Interpretation

References

 

 

 

 

 

 

 

 

 

 

 

 

 

ABSTRACT

The
Senate narrowly passed a massive tax bill on December 2nd, 2017 by a
vote of 51-49.  The bill overhauls the
U.S. tax code, the largest change since Ronald Reagan’s presidency.  The final bill is roughly 479 pages long,
including remarkable cuts in corporate tax rates, a big change in estate tax,
and the eradication of a number of personal tax deductions.  The bill would abolish the penalty for not
having health insurance, increase the child tax credit, and allow businesses to
fully deduct business expenses.  The next
step for the tax bill will be a conference committee with the House to sort out
their differences in bills.  The House
and Senate will now work quickly to resolve the differences between their bills
and deliver a plan to President Trump’s desk, with the aim of delivery by
Christmas. 

 

Collected Data

Economic Production

            In an article on the New York Time’s
website titled “Trump Tax Plan Will Not Bolster Growth, Economists Say”, author
Binyamin Appelbaum states that, “When the economy is struggling, cutting taxes
can increase spending by leaving consumers and businesses with more money to
spend.  That increased demand is valuable
when unemployment is high; it puts people back to work.  But during periods of low unemployment, tax
cuts can actually be damaging to the economy. 
If companies find it difficult to respond to the additional demand for
goods and services by hiring more workers and increasing output, the result is
likely to be higher prices rather than faster economic growth.”  The Trump administration argues that decreasing
corporate tax rates would encourage investment and research.  Both the House and Senate bills would
permanently lower the top corporate tax rate to 20% from its current 35% and
repeal the corporate alternative minimum tax. 
The House bill would eliminate a number of business credits and
deductions, including the section 199 (domestic production activities)
deduction, the new market tax credit, the orphan drug credit and like-kind
exchanges.  The Senate bill would
eliminate the section 199 deduction.

 

Economic Well-Being and Unemployment

            The national unemployment rate through
October 2017 is 4.1 percent, according to the Bureau of Labor Statistics.  Economists disagree on whether the tax plan
would be good for the economy.  The Tax
Policy Center says that over the first decade, the government would lose $6.2
trillion in revenue, producing huge budget deficits that could hurt the
economy.  Additionally, an element of the
Trump plan: It would eliminate the federal estate tax entirely. Only the
wealthiest taxpayers — less than 1 percent — now pay that tax. Ending it would
lead to an even greater concentration of wealth in the U.S. 

 

Cultural Complexities

Trump’s tax plan will affect many dimensions of
society.  Tax advantages for businesses
make up the majority of the Senate tax plan. 
Even accounting for the positive macroeconomic effects, the Trump tax
cuts are estimated to reduce revenue by $7 trillion in the first decade alone.
Absent offsetting measures, that means the United States would have to borrow a
lot more money than it already does. As a result, the U.S. government will be
competing with the private sector to attract investors’ dollars, and that will
drive money away from a productive part of the economy.  “The idea that this plan would help
average Americans instead of the wealthy and big corporations has been a hoax
all along,” Frank Clemente, the executive director of the progressive
tax-focused think tank Americans for Tax Fairness, said in a statement in an
article by Andrew Soergel titled Would a Trump Tax Cut Boost Economic
Growth? He goes on to say, “This
plan will not lead to robust job creation or economic growth, but its
eye-popping cost will lead to deep cuts in Social Security, Medicaid, Medicare,
and public education that will leave working families in the cold.”

Conclusion

Overall interpretation

 

The Senate plan and the
House plan must be reconciled by December 15th, 2017.  The Senate bill would be more helpful to businesses
than to individuals.  Although, for individuals,
it would help the families with higher income the most.  Neither the House plan or the Senate plan
helps the lowest-income families.  Both
plans increase the deficit.   

 

 

References

Applebaum,
B. Trump Tax Plan. Retrieved from

 

 

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