December 22 nd 2017, marked the signing of Tax Cuts and Jobs Act by Trump to reduce tax rates of employees and increase wages. The Acts would operate by cutting the income tax rates of individuals, doubling the standard deductions, and eliminating personal exemptions. The Act resulted in a 37 % reduction for the top individual tax rate. The corporate tax rate was cut from thirty-five % to twenty-one % from year 2018. While the corporate tax reduction was made permanent, the changes in individual rate would expire in 2025. Introduction of the Act was meant to benefit the low and middle-income earners in the nation through reduction of the taxes reduced from their salary. It means the salary of employees would not be affected largely. Elimination of personal exemptions could benefit families with large families as they were required to pay higher tax rates. The Act was supposed to be an advantage, but it has been misused regularly.
The Act has been faced with rejection and opposition by the Federal Reserve. In 2018, Federal Reserve raised the interest rates, despite the financial market alarm. The Federal Reserve faced political pressure so that the interest rates increase could be suspended. According to the Federal Reserve chairman, Jerome H. Powell, the economy was growing, and increasing rates would be beneficial for the slow domestic growth (Appelbaum, 2018). The chairman indicated that the increase in rates would result in a healthy economy. However, increasing the interest rates did not operate as the Feds had planned. The investors dumped their holdings, and the prices of stocks reduced. The Federal Reserve proved that they had power over President Trump, who had promised the nation that the interest rates would be reduced. It was predicted that the Fed would continue to increase the rates, and it happened.
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The employee believed that the tax cut would be a way of corporations showing generosity to them. However, it has not been as great as the workers expected. The great story spread by the tax-cut Act was that corporations would be sharing it with the employees and the community. The wealthy shareholders of these big companies are the beneficiaries, where the minimum wages in the companies are loudly announced, only for the workers to be provided with layoff notices silently. There are various cases which indicate how the shareholders are benefiting from tax cut instead of the employees. In Apple Company, for instance, there are big payouts being done to the investors, named “new investments,” and they are not linked to the tax plan. Only a small amount of tax is going to the community or workers (Tax Fairness, 2019). The estimated tax cut at Apple Company is 5.6 dollars billion, which is nineteen times more in comparison to the bonus payments. Therefore, the shareholders end up benefiting on behalf of the workers.
Companies have different ways in which they are using Trump tax cuts. Various studies are being carried out as a way of establishing whether the tax cut has been operational. The “Trump Tax Cut Truths” website of Americans for Tax Fairness (ATF) shows has been looking into the spending of the tax cuts. A total of Fortune 500 companies who make up of two-thirds of the American GDP have been under study. The data collected on these studies are based on information collected from the corporations, media, analysts from the companies, and ATF research since 2017 when the law was passed (Tax Fairness, 2019). Most of the data shows that the tax cut does not benefit employees as it was expected.
The American businesses have been spending the Trump tax cut differently. According to the Bureau of Labor Statistics, America has a workforce of 157 million employees. Among those, only 6.8 million employees can access a non-time bonus or an increase in wage-related to the business tax cuts. It is 43 % of the employees, which is much lower, considering that workers in lower and middle classes should be accessing the tax cut benefits. The Census Bureau shows that the United States has 5.9 million employers. Only 413 businesses are able to increase the payment of their workers in relation to the tax cut. Therefore, the largest number of employers benefit from the tax cut instead of sharing it with the employees (Tax Fairness, 2019). When the corporations are supposed to be sharing with the employees, they are using 154 times more to stock buybacks instead of paying bonuses and wages. It is clear that the businesses are the ones benefiting from the tax cut and not the workers as intended.
The results of the Trump cut are still under scrutiny after one year since it was implemented. The tax cut has caused major changes in society, economy, and government. The main focus of the law was cutting corporate taxes, and it was possible since the domestic profits were reduced by 40 % (Tax Fairness, 2019). The wealthy have been benefiting from the tax cut, and it has been possible since most stocks are owned by the rich. The law has failed in ending the profit shifting by corporations to offshore tax, which was meant to benefit domestic businesses. The law has been supporting offshoring of American jobs, which creates competition between the Americans and employees from other nations (Amadeo, 2019).
The impacts of the Act to economy have been both negative and positive. The Act was estimated to create about 339,000 employment opportunities, increase the salary by 1.5 percent as well as the long-run GDP. The federal revenues, on the other hand, would be reduced by 1.47 trillion dollars conventionally and on a dynamic basis, the reduction would be 448 billion dollars. Since one year has passed, most of these factors are yet to be achieved since they are long-run. Therefore, more years would have to pass before the effects of the Act are determined. Studies show that spotting policy changes in economic data is hard, for instance, in employment, when some are being hired, others are being fired, and that makes it difficult to determine if the Act is effective (Kaeding, 2019). When there are policy changes in a country, it affects tax reforms, and that is hard to determine if the Trump Act is effective as changes such as by the Federal Reserve affects the tax reforms.
When Trump took over leadership, his intention was improving the economic situation of the states. The implementation of Act was supposed to increases the wages to benefit the low and middle-income earners and create job opportunities for Americans. Some of the Americans have benefited from the Act through an increase in wages and benefits. However, the employers pocket most of the reduced taxes and small businesses and employees ends up suffering, which was not intended.
References
Appelbaum, B. (2018, December 19). Fed Raises Interest Rates, Showing Confidence in Health of Economy. Retrieved June 20, 2019, from https://www.nytimes.com/2018/12/19/business/fed-interest-rates.html?mc=contentSEdom&ad-keywords=auddevgate&gclid=EAIaIQobChMIrpj7jayw4AIVFVuGCh26bgB7EAAYASAAE
Amadeo, K. (2019, June 01). How Trump's Tax Reform Plan Affects You. Retrieved June 20, 2019, from https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968
Kaeding, N. (2019, March 21). The Tax Cuts and Jobs Act After A Year. Retrieved June 20, 2019, from https://taxfoundation.org/tcja-one-year-later/
Tax Fairness. (2019, May 14). ANALYSIS: THE TRUMP-GOP TAX CUTS ONE YEAR LATER. Retrieved June 20, 2019, from https://americansfortaxfairness.org/analysis-trump-gop-tax-cuts-one-year-later/
Tax Fairness. (2019). CORPORATE STORIES: TAX-CUT-INSPIRED "GENEROSITY" IS MUCH LESS THAN IT SEEMS. Retrieved June 20, 2019, from https://americansfortaxfairness.org/corporate-stories/
Tax Fairness. (2019). KEY FACTS: HOW CORPORATIONS ARE SPENDING THEIR TRUMP TAX CUTS. Retrieved June 20, 2019, from https://americansfortaxfairness.org/key-facts-american-corporations-really-trump-tax-cuts/
