More details are coming out about the GOP's proposed tax reforms. Although officials in the Trump administration seem to be disagreeing about what actually is in the tax plan - for instance, Gary Cohn could not answer an ABC interviewer's question about whether or not the tax reforms would raise taxes for the poor - we can tell a lot by the data released.
The tax plan would reduce the number of brackets from 7 to 3. This shift to a 12%, 25%, and 35% bracket would imply a tax hike of 2% for the very poorest (who currently get taxed at a 10% marginal rate) and a tax break for the very richest at 35% (a decrease from the current 39.6% marginal rate). The plan would also double the standard deduction but get rid of many itemized deductions (such as deductions for state and local taxes already paid) and there $4,050 personal exemption for every person in the taxpayer's households. For single taxpayers, this would be beneficial; for families with more than 3 children, they would lose out on the exemption for their additional children.
This tax plan has huge implications for fiscal policy - with so much less money coming in from the very wealthy, corporations, and income made overseas, we will presumably see less government spending. The way that these two factors change in relation to each other will impact national saving, and may end up impacting the world interest rate.
http://money.cnn.com/2017/09/27/news/economy/tax-reform-framework/index.html
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ReplyDeleteFrom what I have heard in the news, the standard deduction might also be increased up to $12,600. With this big of a standard deduction, the people in the 12% tax bracket wouldn't be affected as much by the reform as it originally seems. However, the government would be making much less income from taxes in total. Therefore, the government will be forced to spend less and it will be interesting to see how this impacts the US economy and the world economy.
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ReplyDeleteMeanwhile, the US Federal Reserve warned today that the tax reform plan could raise inflation and make government debt rise to unsustainable levels. These Fed officials believes these downsides may outweigh the advantages of more jobs, higher wages, and higher economic growth rates that the Republicans behind the reform think it will bring.
ReplyDeletehttp://www.reuters.com/article/us-usa-tax/republicans-move-on-tax-reform-fed-officials-see-economic-threats-idUSKBN1CA20J
Lowering the top tax rate by 5% does not seem like it will do much good for anyone besides the super wealthy. It would give them more disposable income that could possibly get invested but as we found out in class a tax cut decreases national saving which in turn decreases investment. For this reason I think a tax reform that increases the tax rate for the super wealthy would be the most beneficial for the economy as a whole.
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