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Donald Trump’s tax plan and its effect on the United States Nationally, Globally, and its Citizens

Updated on November 14, 2016

Individual

Donald J. Trump initially proposed his tax plan of cutting taxes for businesses and the middle class while campaigning for the primaries. In August he revised his plan and added many details including; Tax Brackets, Standard deduction changes, corporate rates and eliminating the gift/estate tax. Furthermore, Donald J. Trump's plan could have an effect on the economy at domestically and globally. In this paper, I aim to simplify the effects of his tax plan, on the individual, the United States and examine some assumed outcomes for the United States from a global perspective.

Individual

Let’s face it, there are not many people on this earth that think about the good of their country before the good of their own wallet. Trump’s tax cuts are close to home and can help the average American. He proposes doubling the standard deduction and lowering effective tax rates across the board. This means that around $8,000 for single filers and $16,000 is completely untaxed; combined with the fact that most incomes will see a lowering of effective tax rates, everyone will be paying fewer taxes(Fox, Pg.1). Trump’s system is very appealing across the board, but only two groups benefit greatly. First, since the standard deduction and the 0% tax bracket are increasing some families earning low incomes could experience no tax at all. The second group that could experience 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, Pg. 1)

Some people compare Trump's tax plan to an escalated version of the George W. Bush tax cuts. Another issue with Trump’s tax plans is they are very vague in substance and impractical in today’s society where corporations and individuals take advantage of every break possible. One loophole that exists is that individuals can set up LLCs and like corporations and actually lower their tax rate, this is due to very low unearned income tax rates. By funneling all of your income through these mock corporations, individuals could create a tax ceiling of 15%(Trump’s unearned income alternative rate) even though the normal tax brackets go up to 33%. Now, it can be reasonably assumed that this plan once brought to a cooperative congress would be tightened up with many more rules added to eliminate 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 whole plan goes through the decrease in tax revenue could create a strained relationship between the United States’ revenue stream and the expenditures they have budgeted for, thus influencing their ability to create an economic incentive for the U.S. economy.


National

On a grander scale than the individual, the United States economy would change due to Trump's tax plan. After the individual changes are accounted for, the corporations would be the next largest factor. Trump plans on dropping corporate tax rate considerably, which would create an upwards swing in after-tax profits. This benefit could go two ways; first corporations could pay the excess profit out to shareholders in dividends or second corporations could reinvest the extra money into retained earnings. Either way, this would give an injection of good profits and growth to the economy. In terms of United States tax revenue, this growth caused by the tax break would make up for some of the deficit in tax revenue even more so if most of these profits were distributed in dividends. To further decrease the tax deficit Trump has proposed a one-time offshoring tax that would be paid 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 arguably skyrocket. This is due to a drop in tax revenue and a projected increase in spending. Some major expenditures would include border security (the wall) and increases in military spending. Trump has promised to decrease expenditures in other facets but has only stated that he will eliminate inefficiency and cut out waste. The below figure compares our current Real GDP path and how it would change with Trump’s economic policy shown in 2009 dollars

As shown in the figure below, Trump's economic policy is not very favorable for the United States economy. Due to increased globalization and low reinvestment of profits, the initial gain from Trump's plan diminishes and actually reverses. Overall, Trump's plan could be very bad for the economy, especially if previous tax cuts are any indication of their effects(Zandi, Pg. 2).

Global


Internationally, the United States is no longer the world's only powerhouse. With a multitude of other 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 decrease exports and make our exports more expensive. Plus, the one-time offshoring tax will create a strain on multinational companies. The largest upswing for the United States would be the new low corporate tax rate could attract companies to come back to America and enjoy the low taxes. This is shown in the above figure with the temporary gain in GDP growth rate. It has not yet been shared exactly how the lower corporate tax rate would bring companies back, most companies that have offshored their business still maintain corporate status in the United States and I doubt that a break in corporate taxes would be greater than what it costs to pay an American Labor force.

In conclusion, Donald Trump’s tax plan can and would have a much greater effect than it appears on the surface. If the senate agreed to adopt Trump’s full plan as it is now: the individual would see personal taxes decrease and corporate taxes decrease as well, Federal revenues would swing high then low along with the United States GDP, and Trumps overarching economic policy could put America in a very sticky place in the global economy. As a forewarning, this essay does follow many assumptions made by Moody’s and the Tax institute. In final thoughts, Trump’s tax plan would benefit Individuals and the United States corporations greatly but would create friction in the overall US economy could cause another economic slowdown.


Work Cited

Fox, Lauren. "Unlike His Immigration Plan, Donald Trump's Tax Proposals Are Actually Feasible." National Journal. National Journal, n.d. Web

Nunns, Jim, Len Burman, Jeff Rohaly, and Joe Rosenburg. "An Analysis of Donald Trump's Tax Plan." AN ANALYSIS OF DONALD TRUMP'S TAX PLAN (n.d.): n. pag. Web. < <a target="_blank" rel="nofollow" href="http://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan/full">http://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan/full</a> >.

Zandi, Mark. Clinton's Proposed Economic Policies Will Be Forthcoming.MOODY'S ANALYTICS The Macroeconomic Consequences of Mr. Trump's Economic Policies 1 (n.d.): n. pag. Moody's. Moody's. Web.

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