Question

2. In December 2017, the US Administration passed the Tax Cuts and Jobs Act (TCJA). This lowered the top marginal corporate tax rate from 35% to 21%.

(a) What is the definition/interpretation of the “marginal tax rate”? (

b) According to the neoclassical model of investment, what should the US corporate tax rate cut have achieved?

(c) Give an explanation of how you might use this is a natural experiment to examine the effect of the corporate taxes on investment.

(d) What have been the effects of that TCJA so far? Has it had any of the intended effects?

Answer 1

A) marginal tax rate is the ratetax incurred on additional eac dollar of income. Aims of this method to tax fairly individuals based upon their earnings, with lowincome earners being taxed at a lower rate than higher earners incones

B)neo classical explains that at a time particular how much capital stock a firm desires to achieve. according to this , rate of investment is determined by the speed with which firms adjust their stocks capital towards the desired level. This help in US rate cut achieved

C) TCJA natural experiment - Does the interest mortgage deduction play a big role in supporting residential price real estate?

Answer is no, but we’ll know for sure within a few months.

lower federal corporate income tax rate permanently will lead to several positive economic effects.

1)encouraging investment in the United States and discouraging profit shifting.

2)As additional investment grows the capital stock, the demand for labor to work increase with the new capital will increase, output, leading to higher productivity, employment,

Effect on corporate tax

example, a 10 %increase in the corporate tax rate reduces GDP, aggregate investment ratio by 2 %

D)yes, TCJA Had intended effect on individual

(Impact on Individual)

The TCJA lowered tax rates and simplified the individual income tax for most filers. The Act nearly doubled the standard deduction to $12,000 for individuals AND For married couples in 2018 is $24,000. The number of individuals taking the deduction standard will increase in 2018 from 70 percent of returns to 90 percent approx, reducing cost compliance by $3 billion to $5 billion annually.