The Tax Cut And Jobs Act, 2017: The Changes Made By The Tax ✓ Solved

The Tax Cut and Jobs Act, 2017: The Changes Made by the Tax C

The final report examines the significant changes introduced by the Tax Cut and Jobs Act (TCJA) of 2017, analyzing their implications on taxpayers, the economy, and government finances. It provides a comprehensive overview of the major provisions altered by the act, assesses its potential impact on GDP and the federal budget, personalizes the effects experienced by individuals, and evaluates who benefits most from these reforms. Additionally, the report offers criticisms and suggestions for revision, integrating expert opinions and personal insights to present a balanced critique of the legislation.

The Tax Cut and Jobs Act, enacted in December 2017, was one of the most comprehensive overhauls of the U.S. tax code in decades. Its primary objectives included stimulating economic growth, simplifying the tax system, and reducing corporate tax rates to make American businesses competitive globally. This legislation introduced several broad-reaching changes, notably lowering the corporate tax rate from 35% to 21%, doubling the standard deduction, eliminating personal exemptions, and capping certain deductions like state and local taxes (SALT). Furthermore, it temporarily reduced individual income tax rates across various brackets, although these reductions were set to expire in 2025, making many provisions temporary rather than permanent.

Major Changes to the Tax Provisions by the TCJA

The TCJA brought about numerous modifications in taxation with far-reaching effects. The reduction of the corporate tax rate from 35% to 21% aimed at incentivizing corporate investment and increasing competitiveness. This change was expected to promote economic growth through increased business spending on capital assets, research, and employment. The legislation also transitioned to a territorial tax system, which favored multinational corporations by exempting foreign profits from U.S. taxation, thus encouraging repatriation of offshore earnings.

On the individual side, the TCJA doubled the standard deduction from $6,350 to $12,000 for singles and from $12,700 to $24,000 for married couples filing jointly. It also eliminated personal exemptions and significantly limited itemized deductions, especially for SALT. These adjustments aimed to simplify the tax filing process but also shifted tax burdens depending on taxpayers’ circumstances. Additionally, the act introduced a new 20% deduction for pass-through income for small business owners, which was designed to alleviate tax burdens on small and medium enterprises (Tax Foundation, 2018).

Likely Impact on GDP and Government Budget

The TCJA was projected to stimulate economic growth, with estimates suggesting an increase in GDP growth rates of around 0.2-0.4% annually (Congressional Budget Office, 2018). By lowering corporate taxes, the act aimed to encourage domestic investment, job creation, and higher wages, thus fostering a more robust economy. Nonetheless, economic experts debated whether these effects would be sustainable or merely a temporary boost driven by increased corporate profits and stock market gains.

However, these fiscal stimuli came with significant costs. The Congressional Budget Office estimated that the TCJA would add roughly $1.9 trillion to the national deficit over a decade, primarily due to revenue reductions (CBO, 2018). The reduction in revenue constrains the federal government's ability to finance essential programs, potentially leading to higher borrowing and interest costs, which could offset the intended economic benefits. The long-term effects on GDP depend on how effectively the increased corporate profits translate into productive investments versus stock buybacks and dividends.

Personal Effects of the Tax Changes

On a personal level, the TCJA provided modest tax relief for many middle-income households through the doubling of the standard deduction. However, the elimination of personal exemptions and the capping of SALT deductions meant that some taxpayers, especially in high-tax states like California and New York, faced higher state and local tax burdens. Individuals with significant mortgage interest, charitable contributions, or medical expenses experienced mixed effects depending on their specific tax situations (Center on Budget and Policy Priorities, 2018).

Taxpayers in lower or middle-income brackets generally saw limited benefits because the temporary reductions in individual tax rates are set to expire in 2025. Conversely, high-income households and corporations benefited significantly from the reduction in tax rates and increased deductions and credits. Entrepreneurs with pass-through business income gained a new deduction, potentially lowering their effective tax rate and boosting their disposable income.

Who Benefits and Who Does Not?

While the TCJA aimed to bolster economic growth across all sectors, evidence suggests that higher-income households and corporations reaped the most benefits. The corporate tax cuts increased after-tax profits, stock buybacks, and executive compensation, disproportionately favoring wealthier Americans who hold significant assets (Institute on Taxation and Economic Policy, 2018). Conversely, many middle- and lower-income taxpayers faced limited benefits or increased burdens due to the loss of personal exemptions and state tax deductions.

State and local taxes, in particular, became burdensome for residents of high-tax states because of the SALT cap, leading to disparities in tax burdens depending on geographic location. Overall, the redistribution of tax benefits has raised concerns about increasing income inequality and whether the legislation primarily favors corporate interests at the expense of fiscal stability (Brookings Institution, 2018).

Agreement, Disagreement, and Recommendations

I agree with the TCJA’s goal of stimulating economic growth through corporate tax reduction, which can incentivize investment and job creation. However, I disagree with the temporary nature of many individual tax provisions, which introduce uncertainty and undermine long-term planning. The significant revenue loss and increased deficit are troubling, particularly because they threaten fiscal sustainability and could lead to future austerity or tax hikes.

If given the authority to revise the Act, I would make the tax cuts for individuals and corporations permanent, ensuring stability and predictable fiscal policy. I would also implement more targeted provisions to reduce income inequality, such as expanding the Earned Income Tax Credit and adjusting the SALT deduction cap to benefit high-tax states equitably. Additionally, emphasizing investments in infrastructure, education, and renewable energy could foster sustainable growth rather than merely providing short-term tax relief (Economic Policy Institute, 2018).

Expert opinions universally acknowledge that while the TCJA may stimulate growth in the short term, it carries risks related to fiscal deficits and inequality. Economists such as Jason Furman have emphasized the importance of balancing tax cuts with revenue considerations to avoid long-term economic distortions (Harvard Kennedy School, 2018).

Conclusion

The Tax Cut and Jobs Act of 2017 represents a significant shift in U.S. tax policy, with widespread implications for economic growth, government revenues, and individual taxpayers. While proponents laud it as a catalyst for increased investment and competitiveness, critics highlight concerns about long-term deficits and inequality. A balanced approach that ensures both growth and fiscal responsibility, along with targeted support for disadvantaged communities, could improve upon the legislative framework established by the TCJA.

References

• Brookings Institution. (2018). The impact of the tax cuts and jobs act on inequality and the federal deficit. https://www.brookings.edu
• Congressional Budget Office. (2018). The Budget and Economic Outlook: 2018 to 2028. https://www.cbo.gov
• Center on Budget and Policy Priorities. (2018). Tax policy implications of the 2017 tax law. https://www.cbpp.org
• Economic Policy Institute. (2018). The long-term fiscal impact of the TCJA. https://www.epi.org
• Institute on Taxation and Economic Policy. (2018). The hundred-billion-dollar question: How the TCJA affects inequality. https://itep.org
• Tax Foundation. (2018). The Tax Cuts and Jobs Act: An overview. https://taxfoundation.org
• Harvard Kennedy School. (2018). Analyzing the fiscal effects of the TCJA. https://www.hks.harvard.edu
• Tax Foundation. (2018). How the TCJA changes individual taxation. https://taxfoundation.org
• Center on Budget and Policy Priorities. (2018). The effects of the TCJA on the federal budget. https://www.cbpp.org
• Furman, J. (2018). A balanced approach to tax reform. Harvard Kennedy School. https://www.hks.harvard.edu