In August he revised his strategy and added many details including Tax Brackets, Standard deduction changes, corporate rates and eliminating the gift/estate tax. Moreover, Donald J. Trump’s plan might have an effect on the market at domestically and globally. In this paper, I aim to reevaluate the effects of his tax plan, on the person, america and examine some assumed outcomes for the USA from a global perspective.
Let’s face it, there are not many people on this globe that consider the good of their country before the good of their own wallet. He proposes doubling the standard deduction and lowering effective tax rates across the board. This implies that around $8,000 for single filers and $16,000 is completely untaxed; together with the fact that most incomes will see a lowering of effective tax rates, everyone will be paying fewer taxes. 1) Trump’s system is very attractive across the board, but only two groups benefit considerably. First, since the standard deduction and the 0% tax bracket are increasing some households earning low incomes could experience no taxation in any way. The next group that could undergo a massive tax break is multi-millionaires.
“… the highest-income 0.1 percent of taxpayers (those with incomes over $3.7 million in 2015 dollars) would experience an average tax cut of more than $1.3 million in 2017, nearly 19 percent of after-tax income” (Nunns, Pg1)
Some people compare Trump’s tax plan into an escalated version of the George W. Bush tax cuts. Another issue with Trump’s tax strategies is they are extremely vague in substance and impractical in today’s society where individuals and corporations take advantage of every break possible. 1 loophole that exists is that individuals can set up LLCs and like corporations and really lower their tax rate, this is due to very low unearned income tax prices. By funneling all your income using these mock corporations, people could create a tax ceiling of 15%(Trump’s unearned income choice rate) although the normal tax brackets go around 33%. Now, it can be reasonably assumed that this strategy once brought to a concerted congress would be tightened up with a lot more rules added to remove glaring loopholes and problems with the plan. In the case of a democratic house or senate, these tax reforms could be shot down entirely. With the assumption that his entire plan goes through the decrease in tax revenue could create a strained relationship between the United States’ revenue stream and the expenses they have budgeted for, thus influencing their ability to produce an economic incentive for the U.S. economy.
On a grander scale than the individual, the United States economy would change due to Trump’s tax program. Following the individual changes are accounted for, the corporations would be the next biggest factor. Trump plans on dropping corporate tax rate substantially, which would create an upward swing in after-tax profits. This advantage may go two ways; first corporations could pay the excess benefit out to shareholders in dividends or second corporations could reinvest the excess money into retained earnings. Either way, this could give an injection of good profits and growth to the market. Regarding United States tax revenue, this expansion brought on by the tax break could compensate for some of the deficit in tax revenue even more so if the majority of these profits were distributed in dividends. To further decrease the tax deficit Trump has proposed a one-time offshoring tax that would be compensated by any U.S. firm that has moved its operations overseas. These measures could eliminate the deficit in the short term, but long term the deficit could skyrocket. This is due to a drop in tax revenue and a projected growth in spending. Some significant expenditures would include border security (the wall) and increases in military spending. Trump has promised to reduce expenditures in other facets but has just stated he will eliminate inefficiency and cut out waste. Trump’s economic policy isn’t very beneficial for the United States economy. Because of increased globalization and low reinvestment of profits, the initial gain from Trump’s plan diminishes and actually reverses. Overall, Trump’s plan may be very bad for the market, particularly when previous tax cuts are any indication of the effects.
Internationally, the United States is no longer the world’s only powerhouse. With a multitude of different countries on par with the US and winning in some facets. The United States is in no place to fall behind. The biggest problem with Trump’s tax plan and his overall economic policies is that they are isolationist policies. Globalization has created winners and losers, but segregating the United States by pulling out of trade deals like NAFTA will actually reduce exports and make our exports more expensive. Additionally, the one-time offshoring tax will create a strain on multinational companies. The largest upswing for the United States are the new low corporate tax rate could entice companies to return to America and enjoy the low taxes. This is shown with the temporary gain in GDP growth rate. It has not yet been shared precisely the way the reduced corporate tax rate would bring businesses back, most companies that have offshored their business still maintain corporate status in america and I doubt that a break in corporate taxation would be higher than what it costs to cover an American Labor force.
To conclude, Donald Trump’s tax program can and would have a much greater effect than it seems on the surface. If the senate agreed to embrace Trump’s full plan as it is now: the individual would see personal taxes decrease and company taxation decrease too, Federal revenues would swing high then low along with the United States GDP, and Trumps overarching economic policy could put America at a very sticky place in the global economy. As a forewarning, this essay does follow many assumptions made by Moody’s and the Tax magician. In closing thoughts, Trump’s tax plan would benefit People and the United States corporations greatly but would create friction in the entire US economy could cause another economic downturn.