Taken from our blog,”Brink of economic thought”
It has been nearly half year since the time when US presidential election produced one of surprising results. Since then we have seen many steps taken by elected president Trump. As of lately the geo political analysts are looking into the events transpiring within and around Korean peninsula and how would they impact the global situation. In these times within US president Trump has also made his intention clear about his promise to cut taxes and simplify the tax codes.
This was one of his promises which he pledged during his election campaign. How is it so that anything or even a minutest happening on the US economy makes such a big headlines? Given the context that US is the largest economy in the world, nearly 19 tn $, it is very natural that events there will be creating impact globally.
The proposed plan intends to fulfill various targets. This has been categorically remarked that objectives are to grow the economy and create millions of jobs. Tax deduction is expected to enhance the investment in major sectors of economy. Aim is also to lower the corporate tax rates from current highest in the world to the lowest in the world.
It is being considered as one of the most significant tax reform witnessed in US since 1986.There are certain steps which will be taken for individual reforms and business reforms and this will be discussed a little bit in the analysis.
Individual tax reforms
The plan proposes tax relief for American families and the ones which are middle income families by reducing the 7 tax brackets to mere 3 brackets of 10%, 25% and 35 %.Doubling the standard deduction.
There has been further simplification proposed by repealing of alternate minimal tax and repealing of death tax.
Among the list of business reforms few are 15 % business tax rates.
Territorial tax rates to level the playing field for American companies.
Elimination of tax breaks for special interest.
Trump is now planning to fully exempt the companies that are earning from overseas. It seems that administration’s measures to cut the tax rates will eventually increase the fiscal deficit. This has been one of the concerns which have been raised by many of analysts and economists about the situation that with already ballooning fiscal deficit this step may further widen the gap between revenues generates and expenses occurring.
However it will also to be watched as major portion of the plan if executed properly will be boosting economic output and creating more jobs.
There is an observation made in pure economic terms that federal government has to borrow more money, while private entities have more money to invest.
Society actually ends up borrowing money at 1 to 2 percent and may be receiving 5 to 10 percent in return. That is a always a possibility that society is going to receive a net gain, not bearing economic cost.
In total terms the deal appears more favorable than it may look at first. The new investment will not only create jobs but also some products for which the beneficiaries will not only be some peoples or wealthy peoples in the society but every section of the society.
Keynesian economics of demand side emphasis and huge governmental spending had defined many arguments in the last century. Those ideas which were conceptualized not only paved way for overcoming the depression of 1930s but also provided a unique direction to economic thinking , ideas and governmental policy formulation.
Now we find here that major of these investments will be done by corporate players. Rate of return on private investment is higher due to individual’s interest involved as compared to the federal government spending.
Now for the coming months this is to be seen that how will US president move with the plan in the congress. There is also one of the suspicions raised that too much personal income will be converted to business forms to reap the benefits of lower tax rates.
However Optimistic version of the move can be that this move will be beneficial in the long run and will be providing boost to the economy.
Harsh Vardhan Pathak