As you know the Tax Cuts and Jobs Act was signed into law by President Trump in
ID: 1146746 • Letter: A
Question
As you know the Tax Cuts and Jobs Act was signed into law by President Trump in L Chapter On political. See attached slide from the Week One lecture. e laid out the premise that tax laws must have three objectives: economic, social and Find one of the new laws passed in the Tax Cuts and Jobs Act which you consider to be economically motivated, one new law which you consider to be socially motivated, and one which you find to be politically motivated. Your memo written to me should be between 500 and 1000 words. Arial 12 pt font, double spaced Do not collaborate on this assignment. Your work must be yours alone. If you quote or use material attributed to another source in order to support your conclusions, be sure to properly credit through proper citation that source. Failure to do so could constitute plagiarism and a visit to the Academic Conduct Committee.Explanation / Answer
The Tax Cuts and Jobs Act passed by the House of Representatives and the House of Representatives has reformed the US individual income tax code by changing the tax rates on wages, investment, the income of business houses. The new law has also further simplified the tax code. The tax code has broadened the tax base and has lowered the corporate income tax significantly by 21 percentages.
Considering that tax laws adhere to three objectives: economic, social and political, the newly introduced act stick to these objectives.
Economically motivated law
Sec. 3001 of the bill, which reduces the corporate tax to a flat 20% (flat 25% for personal services) from a rate approaching to 35%, seems to be an economically motivated decision. This massive reduction in corporate tax rates aims to boost the economic growth. This reduction will, in turn, lead to job creation, the rise in wages and increased profits of corporates which will also lead to capital investment in coming future. The significance of corporate tax slashing on the economy has been seen just after the announcement of tax cuts as various firms including Chrysler announced bonuses for their employees. This has significantly improved the business climate of US and it is estimated that the $2.5 to $3 trillion in profits overseas, which American corporates are holding overseas will be brought back to the country. Also, the tax cut is estimated to increase the GDP by 1.7% in long-term, improving wages by 1.5% and adding around 1.3 million full-time jobs. (Tax Foundation)
Socially motivated law:
Sec. 1002 which specifically deals with the tax reforms for individuals mentions tax cut which seems to be socially motivated. This section increases the standard deductions to $24,400 for married individuals filing a joint return, to $18,300 for head-of-household filers, and to $12,200 for all other taxpayers. (Congres.gov: Official website of Congress). Individual tax cuts will increase the disposable income of the household and individual, thus improving their purchasing power. Individuals will be able to purchase more goods and services from the market. This will improve the living standard of the people and will also spur spending on durable consumer goods. Though the tax cuts are going to vanish after 2027, they will significantly improve the social standard of the population, mainly impacting the US middle-class families.
Politically motivated law
One of the most important decisions in the act which is considered to be highly politically motivated in the line of the next year mid-term election is the changes to the state and local income and property taxes, known as SALT, limiting the deduction to a level of $10,000. SALT deduction which has allowed the small business owners to itemize their deductions helped them to reduce the final amount of taxable income. Critics of this move argue that this deliberately targets states which primarily focus on providing services and care i.e. the Democratic states.
According to the Urban Brookings Tax Policy Center found that a sum amounting to over one-fifth of all of the returns claiming the SALT reduction came from New York and California. Thus these deductions come from areas which already have a large share in the individual as well as corporate tax collection. The lawmakers and representatives of these states are of the view that this deduction should not be eliminated as the one who is getting these tax benefits are the one already having lion’s share in the total tax collection. However, the Republican’s believe that this cap on deductions will further enhance the revenue of fed by more than 1.3 trillion in the next 10 years.
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