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Explain why the tax cut that was passed in 2017 is set to expire in 2016.

Explain why the tax cut that was passed in 2017 is set to expire in 2016.

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Expert Solution

The major provisions of the Tax Cuts and Jobs Act are explained below,

Business Tax Reform

The Tax Cuts and Jobs Act’s most significant changes are to modernize the tax treatment of businesses in the United States. Taken together, the business reforms will result in a significant boost to the U.S. economy by attracting international business investment and jobs to America.

Previous analysis of the two similar bills, independently passed by the House and the Senate, estimates that the economy could grow between 2.6 percent and 2.8 percent larger in the long run.

The expected boost to gross domestic product translates into an increase of about $4,000 to $4,400 per household.

21 Percent Corporate Rate. The bill permanently lowers the corporate tax rate to 21 percent starting in 2018.

Historically, U.S. businesses have faced some of the highest statutory corporate tax rates in the developed world.3

Adam N. Michel, “The U.S. Tax System Unfairly Burdens U.S. Business,” Heritage Foundation Backgrounder No. 3217, May 16, 2017, Chart 1, http://www.heritage.org/taxes/report/the-us-tax-system-unfairly-burdens-us-business.

A 21 percent corporate tax rate, down from the current federal rate of 35 percent, is the most pro-growth component of the Tax Cuts and Jobs Act. The reform will encourage significant new investment in the U.S., which will benefit workers primarily through higher wages and more jobs.4

Adam N. Michel, “The High Price That American Workers Pay for Corporate Taxes,” Heritage Foundation Backgrounder No. 3243, September 11, 2017, http://www.heritage.org/taxes/report/the-high-price-american-workers-pay-corporate-taxes.

A 21 percent federal corporate tax rate still leaves the United States with a higher rate than many of its largest trading partners around the world. When average state taxes are added, the U.S. will have a cumulative rate around 26 percent—higher than the worldwide average of 23 percent.5

Kari Jahnsen and Kyle Pomerleau, “Corporate Income Tax Rates around the World, 2017,” Tax Foundation Fiscal Fact No. 559, September 7, 2017, https://taxfoundation.org/corporate-income-tax-rates-around-the-world-2017/ (accessed September 29, 2017).

Further reductions in the corporate tax rate will be necessary in the future.

ekkarill92 answered 2 years ago
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