Question

5.a. The limits on US federal income tax deductions for mortgage interest and state and local property taxes in the 2017 TCJA reform will increase the tax liability of many taxpayers. Describe how the extra tax burdens will be distributed across different groups of taxpayers, being as specific as possible.

b. An important part of the TCJA is a reduction in the corporate income tax rate from 35% to 21%. Describe how the net benefits from this reform are likely to be distributed across different taxpayers over the next 5 years and over the longer run. What are the most important factors that account for this distribution of net benefits that you consider most likely? Explain.

Answer 1

Answer a.)

TCJA (Tax Cuts And Job Act) has an amendment recently in which individual are being limit by itimeized deduction amount on personal state, local income and property tax in schedule A of Form 1040. Earlier this deduction is unlimited in form so their was as such no limit for deduction. As a result it was favorable to individuals and they can manage huge and better property but at the present secnario it seems like US federal government want to prosper their private sector in real estate industry by creating a entry barrier in form of above to the individual. It's not wrong so say that government intention to increase the optimisation of their land for more output. In this case extra tax burden will be on the individual or we can say that in the language of economics " tax burden bear by the household sector after the Change in TCJA.The above is macro analysis of the case. If we go to detail we can see that this burden will further shift from land owner to that their tenants. And This burden will effect the quantity demanded as the income of consumer hammppered.

Answer b.)

The net benefits of the above reform is distributed amount the private sector specifically for the corporate group. This benefit mostly favorable to the production units because it make a positive effect on their projects and increase their IRR which further attractive more investment . Following are the factors responsible for distribution of benefits.

Decrease in corporate income tax rate:

This will give more room to the existing player in the private sector who are at the initial stage of their projects. As it cut down the tax liabilities which boost their capital. Hence more production opportunity.

Property rate will negative effected:

As increase tax liability for individual produce more seller of property in the market so the new equilibrium level will made with lower price.

According to me above are the two basic factor for the distribution of net benefits of this reform .

Assumption:

1) Other factors keep constant in long run.

2) Only changes discribe in the question are considered not other than that.