Research Paper Discuss the tax cuts recently enacted by cong

Research Paper: Discuss the tax cuts recently enacted by congress and signed by Trump. Give your opinion as to whether it will good or bad for the economy as a whole both long and short run and why? Also, who are the winners and losers and what will the impact be on the middle class?

Solution

Tax cuts enacted by the congress is aimed at boosting economic activity by encouraging firms to produce more and households to consume more. Tax cuts generally results in more money in the hands of workers which means more money to spend. It is important to note that tax cuts are financed by cuts in government expenditure. The current administration has gone in for tax cuts to improve economic growth rate and create more jobs as there seems to be a recession like situation in the US with respect to economic activity and the employment scenario. This could work out well in the short run as tax cuts encourage more work done by workers as there is more money to spend. Tax cuts also reduce the price of the products and increase the purchasing power of consumers, thereby leading to an increase in consumer spending and production activity to match the increase in demand.

In the long run, however, tax cuts will lead to lower tax revenue and thereby lead to a reduction government spending. In the case of the current situation, increased government spending along with reduced tax cuts will lead to a large deficit. This would result in higher GDP and inflation in the short run. But in the long run, the government will have to increase taxes and lower government spending to reduce deficits.

The winners due to tax cuts are big businesses, millionaires and shareholders of large corporations get the benefits of tax cuts in the form of increased dividends. The high income individuals also benefit as they are the ones paying the highest taxes. The losers are low income families as they would lose income tax credit which they claim. The middle class would get 20% of the share of tax cuts while the rich get 47% of the share of tax cuts. This is calculated taking into account the incomes of each category.