Question

3. The Trump administration recently passed a tax legislation. a. Please outline the main features of the legislation and comment on it. Feel free to provide your opinion and express your argument based on your ideological leanings (if any). And in the end suggest what your proposal would be. b. Now forget about your ideological leanings, beliefs and opinions. please provide an objective criticism of the position you take in part (a). Also, evaluate the short term and long run impacts of the proposal.

Answer 1

The congressional revenue act of the United States was originally introduced in Congress as the Tax Cuts and Jobs Act (TCJA) that amended the Internal Revenue Code of 1986. This act was introduced to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018. Several changes that took place:

• Reducing tax rates for businesses and individuals.
• A personal tax simplification by increasing the standard deduction and family tax credits.
• Eliminating personal exemptions and making it less beneficial to itemize deductions.
• Limiting deductions for state and local income taxes (SALT) and property taxes.
• Limiting the mortgage interest deduction.
• Reducing the alternative minimum tax for individuals and eliminating it for corporations.
• Reducing the number of estates impacted by the estate tax.
• Repealing the individual mandate of the Affordable Care Act (ACA).

There were several claims in advocating the Act during 2017:

• Reduction in corporate tax rates from 35-20% and immediate full expensing of non-structure investments (e.g., IT investments) will increase GDP growth rates by 3 to 5 percentage points over the current baseline projections of around 2%.
• As the additional after-tax income is available, the mechanism for this increased growth is at higher business investment levels which is one of the components of GDP.
• Further, this GDP growth (a measure of income and production) could represent an average $4,000 annual increase in wage and salary income for households.
• The Trump administration, also, stated that tax cuts would pay for themselves.

The act was criticized on the following grounds:

• It was believed that there would minor impact on the economic growth.

• There would be limited or no wage impact.

• There could be an increase in income and wealth inequality.

• International tax standards: There were international trade issues and foreign objections that arose.

• Conflict of interests might take place.

• There could be a possibility of tax complication.

• Procedural concerns might happen.