On the 20 December 2017, Republican lawmakers joined President Donald Trump to celebrate their largest legislative achievement of the change in the nation’s tax system in three decades in relevance to the United States presidential election of 2016 campaign of Donald Trump that introduced the Tax reform plan1. Therefore, the reasons he planned to implement this policy are as follow; to make the system more fairly and easily understood, to attract more investors and corporations also to keep American investors to invest inside the United States. Lastly, the middle-income citizens will have more money left from the income to spend and stimulate greater economic growth.2
Moreover, President Donald Trump assured that this new tax cut reform will not only lift the economy and encourage investment in the United States, but will also boost up markets and spur companies to create jobs which will help reduce the burden of middle-income citizen, although others believe most of the benefits will go to those at the top of the income chain.
The structure of New Tax law offers a tax relief to people on all level of the economic ladder. The tax rate has been reduced from 4 steps (10/20/30/40 percent) to 3 steps (12/25/35 percent) aim to increase the tax profits in the business sector and individuals. For business sector, the tax law slashes Corporate tax on business profits will be cut from 35 to 21 percent alongside with the new restrictions on shifting profits abroad, the tax cut is likely to boost the companies’ incentive to remain stateside instead of seeking a better tax environment abroad. On the other hand, the individuals in the middle class will also gain the benefits from the increase in Individual tax deduction rate from 12,000 to 14,000 US Dollars according to the number of from the family members and children. As a result, from the tax cut, a savings can be up to 50 percent for some people. He has claimed on various occasions that his plan, in addition to harnessing economic growth, gives incentives to U.S. corporations to return home.3
According to the news, by implementing the New Tax Cut policy using fiscal measure such as slashes in taxes as an incentive, would this policy boost economic growth in the United States? This essay will analyze how the New Tax Cut affect the Americans especially on the middle-income citizen. In addition, the prospects of the economic growth in the United States.
Firstly, the effects of the Americans which can be divide into two groups; the winners and losers. The tax plan will certainly help businesses more than individuals. According to a report from the Congressional Budget Office, Trump’s tax plan will increase the tax burden for families making less than $75,000 as shown in Chart 1. The median household income in the United States is $57,617, which means that most middle-class Americans will see their taxes increase, not decrease. Conversely, this tax plan will benefit the wealthiest 1 percent of Americans in 83% of the tax reductions.4
Secondly, the Trump tax cuts will add over a trillion dollars to the national debt which will cause a fiscal deficit and the reduce of social welfare, although Republicans argue that greater economic growth will ultimately increase the overall tax take. The current debt is over 20 trillion dollars which the United States owes to public investors, foreign governments, and other investors. According to the Joint Committee on Taxation, Trump’s plan will add an estimated $1.5 trillion to the debt over ten years as shown in Chart 2.
Thirdly, according to Trump’s tax plan, the U.S. corporations don’t pay 35 percent, although they will pay even less. To illustrate, the Trump tax plan reduces corporate income tax from 35% to 21%, but because of loopholes, the 35% tax rate cannot be proved. According to the Institute on Taxation and Economic Policy, corporations pay an average effective tax rate of 21.2%, and 6.9% of corporations pay no income tax at all. Since the Trump tax plan does not remove corporate loopholes, the effective corporate income tax rate will be much lower than 21% which makes more benefit to the business sector.
Lastly, the tax cut for corporations will trickle down the economy and harm middle-class Americans instead of create wealth for everyone because the corporations and wealthy Americans will use the extra money they get from tax cuts in ways that benefit middle-class Americans. For instance, hiring more employees and paying better wages. The problem is, trickle-down tax cuts do not create jobs or better wages. Moreover, it will hurt the economy by reducing the purchasing power of middle-class Americans and the Trump tax plan will widened the gap between rich and poor.
In conclusion, the New Tax Cut will heavily weighted to ease the tax burden on corporations and wealthy individuals rather than the middle class. Therefore, the middle-class individual is not going to see much of a reduction. If ordinary workers do not benefit, they will not be able to spend more money and stimulate greater economic growth.5
1 Walsh, D., Mattingly, P., Killough, A., Fox, L., & Liptak, K. (2017, December 20). White House, GOP celebrate passing sweeping tax bill. Retrieved January 04, 2018, from http://edition.cnn.com/2017/12/20/politics/house-senate-trump-tax-bill/index.html
2 M. (2017, October 03). ???????????????????? ??? ??????? ????????. Retrieved January 04, 2018, from https://www.matichon.co.th/news/684091
3 Ltd.Thailand, V. T. (2017, September 28). ?????????????????????????? ?????? ???????? Retrieved January 04, 2018, from https://voicetv.co.th/watch/527860
4 Heldman, C. (2017, December 21). 5 Myths about the Trump Tax Plan. Retrieved January 05, 2018, from https://www.laprogressive.com/trump-tax-myth/
5 X. (2018, January 01). News Analysis: Trump’s tax cuts will be big win for U.S. economy in 2018, but poor may not see benefits. Retrieved January 04, 2018, from http://www.xinhuanet.com/english/2018-01/01/c_136863565.htm