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4 Ways Trump's tax cuts have changed the American economy



Some of its effects are already visible, and some of them will take months or even years to understand. Finally, economists are still publishing studies on the implications of the last comprehensive tax reform of 1986, signed by Ronald Reagan.

The following can not and can not say what the tax cuts by President Donald Trump are] has affected the economy so far.

. 1 Corporate taxes fell off the beaten track and fueled deeper deficits

A key feature of the Tax Cuts and Jobs Act was the reduction in corporate tax rates from 35% to 21%.

Although many companies never paid the full rate due to various exceptions, the decrease in corporate tax rates still provided a major incentive. They declined from a seasonally adjusted annual rate of $ 264 billion in the fourth quarter of 201

7 to $ 149 billion when the new rules came into force, and they have not recovered.

Corporate taxes make up only one This is a small part of the federal government's total tax revenue, and has fallen in relative terms to its economy since 1951, after World War II. However, corporate tax revenues are still rising when the economy is performing well. This is the first time that corporate taxes have suffered such damage when the economy is not in recession.

The impartial Congressional Budget Office predicts corporate income tax revenues will gradually increase over the coming years, as will personal income taxes – but not enough to "pay for themselves" the tax cuts, as their Republican supporters do claimed. According to the CBO, tax education will increase public debt by $ 1.85 trillion over a 11-year period, which will even have positive macroeconomic effects.
  Jamie Dimon says tax cuts added $ 3.7 billion to JPMorgan's profit.
Congress has not accepted any spending cuts. Tickets like Medicare and Social Security, which the White House had proposed to reduce deficits. However, increasing debt makes it more difficult to talk about future spending. Legislators have passed a large infrastructure package, for example, because there is no plan to pay for it.

"In a sense, our economy is being hampered by public investment we are not making," said Steve Wamhoff. Director of Federal Tax Policy for the left-wing Institute for Taxation and Economic Policy. "Even if we think that infrastructure spending is a good thing, we can not do this spending politically because we have to tackle this deficit."

. 2 A short-term economic upturn is dwindling

Most economists predict that, along with a rise in military spending, tax cuts would initially plunge the economy into its tracks. The CBO estimates that around 0.3 percentage points of gross domestic product growth of 2.9% in 2018 is attributable to tax cuts.

Part of this came from an increase in business investment in R & D, new factories and equipment, possibly inspired by a provision allowing companies to spend capital expenditure immediately, rather than spending it incrementally over several years. Business Investments increased 8.4% from the fourth quarter of 2017 to the fourth quarter or 2018. This is a good sign because better factories, equipment and tools should increase productivity, resulting in some cases workers allows you to earn more money.

Wages grew at the end of 2018, at least by some measures, a little faster, especially for workers at the lower end of the income spectrum. However, this was also the result of a tight labor market created by nearly a decade of sustained employment growth and minimum wage increases in many states.
The White House Advisory Council took advantage of the growth spike in 2018 to see tax cuts as a success. The new lower corporate tax rate and temporary tax holiday for the repatriation of cash generated abroad resulted in an increase in investable capital – although the companies returned a large proportion of it to investors in the form of share repurchases, mergers and acquisitions.

At the same time it is claimed that the effects will take years.

"We were the highest taxed place in the world, not anymore," said CEA Chairman Kevin Hassett at CNN last week. "Adapting the entire industry home does not happen overnight, but will take three to five years."
  The Tax Reduction Investment
At the moment the trends are going in the wrong direction. According to a Morgan Stanley-led index, corporate investment plans have been declining for about a year. Apart from those who work for the White House, most economists – including those who work for the Federal Reserve and the International Monetary Fund – expect US economic growth in 2019 to be around 2.1% to 2.3%.
Why? One possibility is that the rise in business investment may have been more in line with oil price increases, which, according to the Wharton University of Pennsylvania analysts, is causing significant domestic activity due to the US's huge shale reserves.

The investment hurdle of recent years has more to do with weak demand for goods than with a lack of capital, says Kyle Pomerleau, chief economist of the right-wing Tax Foundation.

"If you look at the US economy, it's not money shortage that keeps businesses from investing," Pomerleau said. "The whole question is whether this money can be used productively, are there any investments that will yield a sufficiently high return after tax to be worthwhile?"

As evidence that this is not the case, most multinational companies have not fundamentally changed the complex tax structures that allow them to earn overseas profits, according to an analysis by the senior fellow of the Council on Foreign Relations, Brad Setser, shows.

In the meantime, the White House has been waging a trade war that has made raw materials such as wood and steel in the US more expensive and increased the cost of domestic production.

"You have two tax policies that work against each other". Pomerleau says.

. 3 Rich People Won More Than Poor People

Roughly 66% of taxpayers saw their tax laws decline by more than $ 100 in 2018, the Congressional Joint Committee on Taxes reported in March. And according to tax preparatory giant H & R Block, total liabilities fell by almost 25% . However, the extent of these reductions depends heavily on how much money you make and had the overall effect of growing income inequality in America.

Here's one way to look at it: as a result of corporate and personal income tax cuts, households earning between $ 500,000 and $ 1 million will increase their income after taxes by an average of 5.2%. Households earning less than $ 50,000 (average income in the US at $ 61,372) see only an increase of 0.6%.

This is partly due to a provision allowing taxpayers who earn money through pass-through companies to deduct 20% of that income. Pass-through companies include everything from architectural firms to part-time landlords registered as partnerships and limited liability companies.

"The people who benefit most, and the people who benefit the most from pass-throughs, are really rich people," said Jason Oh, a tax law professor at the University of California-Los Angeles.

Low-income people have already paid very little in the meantime and have not benefited so much. You can even be hurt by the pass-through deduction. According to Nancy Abramowitz, director of the American Tax University's American Tax Tax Office, employers have used this as a reason to motivate low-paid workers to become independent entrepreneurs, leading to many rights and benefits being lost.

The uneven distribution of the benefits of tax legislation now also calls for further changes to the balance.

The choice of polls makes it clear that most people are of the opinion that the tax system is unfairly targeted at the wealthy Senate Democrats 46 supported a bill that would effectively increase the subsidies for children and income. It attracted no Republican co-sponsors and had no price tag. However, several announced presidential candidates have similar plans. So if the Senate and the White House turn around in 2020, there's a fair chance to become a law.

. 4 Most Other Impacts: Either Too Soon To Say It Or Too Hard To See

The 2017 tax overhaul has delighted or upset a number of special interests, but it's still hard to know if their respective hopes are up or down Fears have come true.

Take the mortgage interest deduction limited to a total of $ 750,000 and weakened by doubling the standard deduction. The estate agents were worried that people would be prevented from buying houses – especially the most expensive ones.

So far signals are mixed. Home sales rose year on year in 2018, according to the National Association of Home Builders, although building permits are flattened. Researchers at the Federal Reserve Bank in New York found that some of these were likely due to several tax overhaul provisions, including the limitation on the interest deduction on mortgage rates.

However, the home ownership rate continued to recover from a low in 2016. And the real estate market is subject to many other factors – from mortgage rates to the price of concrete – that it is difficult to isolate the effects of A's tax requirements.

The same applies to the limited state and local tax deduction, which disproportionately violates states with high tax burdens such as New Jersey and California. According to a report by Moody & # 39; s Investor Service, there has been no significant increase in migration from these states so far. Many people move from one state with high taxes to another.

"Employment opportunities and demographic trends affect migration more than tax rates," the report said.

After all, nonprofit organizations had been annoyed that, with fewer people claiming charitable deduction, their contributions could fall. The Penn-Wharton Budget Model predicted that the 2018 tax bill would reduce charitable donations by $ 22 billion. Instead, an annual report from Indiana University's Lilly Family School of Philanthropy predicted a growth in donations for 2019 and 2020, fueled by higher growth rates, a healthy stock market and rising income.

However, the effect will be uneven. Low-income filers will no longer benefit from the for-profit deduction, resulting in their favored grounds being lost.

"Larger institutions dependent on higher-income households may not feel the effects," said Una Osili, who wrote the Indiana University report. "But if you think about the causes that the everyday giver supports like church-based organizations, they will look more effective."

The Implications Not Seen

Most of the effects of the Tax Cuts and Jobs Act are not yet felt. However, an implication already works in the background. Tax cuts can help mitigate the effects of economic downturns, and there is much less scope for them now.

"The thing that concerns me more is that we are facing another recession," says Oh, from UCLA. "And what we've done with the Tax Cuts and Jobs Act is a set of tools we need to deal with the next recession, at a time when we have no recession."


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