Question

Discuss the economic impact of the Tax Cuts and Jobs Act of 2017 (TCJA) on:

1. U.S. corporations.

2. U.S. economy

3. Other countries including tax havens

Answer 1

1)Tax cuts and Jobs Act reduces the corporate tax from 35 to 21 percent and tenporarily increases the preseng discounted value of capital cost.Major changes include expensing of equioment investment,elimination of personal and dependent exemptions,increases the standard deduction.The impact will be smaller on GNP than on GDP as it will generate net capital inflows from abroad that will be repaid in future.It will enhance incentives for investment by firms and US corporatiins have to pay less corporation tax.

2)US economy TCJA is likely to affect economy through increased incentives to work,save and invest.

it will encourage people to work for more hours and draw new entrants into labor force.

3)for others business will be taxed only on their income earned in US not abroad.Lowering corporate tax will increase long run GDP and increase worker payand grow US capital stock as firms find that more investments are now profitable.the tax overhaul will also increase the cost of states of issuing tax exempt municipal bonds and hence of financing infrastructure.reducing the tax subsidy for spending more on housing TCJA could lead households to reallocate their wealth investing less in housing and more in financial assets issued by private business and governmen.