Question

Fiscal policy is a series of compromises. The Trump administration and congress passed a new tax law.    In an essay form, describe the main components of the Senate Bill and the House bill (Generate a table) that led to the tax law and discuss the compromises that were made to reconcile the two bills. Additionally, evaluate the implications of the law on the following:

Firms

Not for profit organizations

Rich and poor individuals

Students

Economy including the deficit-should we worry about the deficit? Explain

What are the underlying assumptions of the law?

Should the bill have been passed into law? Explain.

How does the law align or not align with social justice?

What is the difference between tax cuts and tax reform?

Answer 1

1. The House and Senate have now each passed different versions of Tax Cuts and Jobs Act.

Both bills are big improvement to America’s out-of-date tax code and could boost the economy by almost 3 percent, leading to more jobs and higher wages for working Americans.

Both bills cut taxes for individuals and businesses, largely repeal the state and local tax deduction, and allow businesses to invest more in the American economy through temporary expensing.

The bills now head to a conference committee where a unified bill will be crafted. Here are some of the major differences you need to know about:

Provision	House Bill	Senate Bill
1. Individual Tax Rates	4 brackets: 12%,25%,35% and 39.6%	7 brackets: 10%, 12%, 22%, 24%, 32%, 35% and 38.5%
2. Standard Deduction	a)Single: $12,000 b) Married: $24,000	a) Single: $12,000 b) Married: $24,000
3. Corporate Tax Rate	Permanent and Immediate tax rate reduction to 20%	Permanent tax rate reduction to 20% in 2019
4. Repatriation Tax	14% on liquid assets and 7% on physical assets	14.49% on liquid assets and 7.49% on physical assets
5. AMT	repeals both individual and corporte Alternative Minimum Tax	Retains both

2.

a) Implications of the law on the Firms: The Tax Cuts and Jobs Act aims to spur economic growth across the United States by adjusting tax structures for small businesses and corporations.

i) There's a 20 percent deduction for all pass-through businesses.

ii) Married individuals who own service-based businesses like law and accounting firms can only receive the 20 percent deduction if they make under $315,000 per year ($157,500 if single).

iii) The corporate tax rate will drop from 35 to 21 percent.

iv) The alternative minimum corporate tax rate will be eliminated

b) Implications of the law on not for profit organizations: The new tax bill increases the standard deduction, and so fewer middle-class Americans will likely benefit from listing individual deductions like charitable donations on their tax returns.

c) Implications of the law on students: "Big subsidies for people with advanced degrees should come under scrutiny when you have a populist streak".

To doctoral students working long hours not just at their studies but with the undergraduates they are required to teach, those subsidies may not look so big. Doctoral students usually receive a small stipend for their studies — on average $15,000 but perhaps double that for students in the sciences — and are almost always expected to teach classes as they complete their degrees. In return, universities waive their tuition.

But House Republicans want to declare the value of that waived tuition — worth as much as $50,000 a year — as taxable income, a huge hit for a student with perhaps a $30,000 annual stipend.

In addition to tuition waivers, House Republicans targeted two other popular graduate student benefits: a tax deduction for up to $2,500 in student loan interest, which graduate students have more of because they do not receive subsidized loans and those loans have higher interest rates, and a “lifetime learning credit” that offsets 20 percent of the first $10,000 of qualified education expenses and can be used for years on end.

d) Implications on Economy and deficit:

According to the Joint Committee on Taxation, the tax overhaul will increase the federal debt by $1.45 trillion between 2018 and 2027. The Penn Wharton Budget Model, which makes some different assumptions, gives a number closer to $2 trillion. In fact, both models understate the true budget impact, as the lions’ share of provisions for individuals set to expire in the years ahead — including $1.2 trillion in across-the-board tax cuts — will likely be renewed or made permanent by Congress when the time comes.