Don’t you think that the news in the United States has become too monotonous these days? Since January 2017, news is incomplete without the mention of the president’s tweets, Russian intervention, someone in the White House getting fired and of course, North Korea. But in recent weeks, I read about something new being discussed in the news. Something which affects the daily livelihood of all working individuals in the country. The GOP’s proposed new tax plan or more appropriately, President Trump’s tax plan.
Fascinatingly, a 440 page long legislation document on the proposed tax structure of the world’s largest economy was voted on just two weeks later leaving no time for analysis or study. The main purpose of this tax is to reduce the taxes and increase the number of jobs. It’s quite interesting as to how people can play with words. The so called “tax cut and jobs act” is more like a tax cut for the rich act. I am not saying that it is all bad but it is definitely really good for the rich. Simple math will prove my point.
Consider a minimum wage worker in the state of Michigan working 40 hours a week. With an income of $8.90 per hour, the annual income of this employee would be summing up to $17,088. With the proposed tax plan, the same employee would be taxed at 12 percent rather than 10 percent. And an employee earning $500,000 would be taxed at 35 percent rather than 39.6 percent as per the proposed plan. I agree that it is indeed to be a tax cut, but for who? Though the number and the amount of tax deductions have increased for the people, the overall beneficiaries of this tax plan is still the wealthiest 8 percent of the United States.
For most of our student readers who think they have lots of time to worry about taxes, let’s just say that the government is preparing us to pay taxes as well. With the current tax plan, low and middle income Americans can deduct up to $2,500 every year in student loan interest, which is going to vanish in 2018. Adding to that, all graduate students who a receive tuition waiver for research or teaching classes will have to pay income tax on the tuition waiver as per the proposed plan. No government in the world has such a preposterous tax structure. I say this because this policy can decrease the ability or the motivation for students to take up college or graduate education, hence decreasing the skillset of the people entering the industry. Isn’t it the government’s responsibility to promote education?
One of the biggest and most debated aspect of the proposed tax plan is the deduction in the corporate tax rate in the U.S. Currently companies’ pay 35 percent of their profits as taxes which is now decreased to 20 percent. This was done in order to motivate industries to shift business to the U.S. which would increase the number of jobs. The extra income is supposed to increase the wages of the workers. Though this would work in an ideal world, the majority of the companies plan on investing this money in the stock market or increasing the shareholders’ dividends to increase their market value, instead of hiring more workers or raising their pay, denying President Donald Trump’s promise.
During Donald Trump’s presidential campaign, he claimed that he would abolish the estate tax as it is a “really bad” tax that harms millions of Americans. The decibels of the crowd cheer increased making me curious to learn about this tax.
Estate tax is the tax levied by the government when a property or assets are transferred from one person to another. This is usually paid by people when they acquire assets from their parents. It is indeed a good idea to abolish such a tax. But the estate tax is levied only if the combined value of the assets exceed 5.5 million dollars which will double to 11 million dollars in the proposed plan and would be completely abolished by 2024. This means that the tax paid by the mega wealthy upper class Americans will be exempted by 2024. I do not really understand how is this bad for millions of Americans, so why was the crowd cheering?
Though there are other deductions which do help the middle class American population, the most benefited from the tax plan would be the wealthy. Donald Trump would also be benefited hugely by some parts of the bill. Apart from the corporate tax and the estate tax, the pass through tax rate for passive real estate investors is reduced to 25 percent from 39.6 percent. This would benefit Donald Trump and his family as all his income obtained through real estate will be taxed at a lower rate.
Overall, the Tax Policy Center findings show that half the benefits of the bill go to the top 1 percent of the American population by 2027. The JCT (Joint Committee on Taxation) estimates the cost of the bill to be 1.5 trillion dollars over the next decade which will be added to the country’s financial deficit. I am no expert to judge or validate the complete proposed tax plan but the undeniable fact is that it is less of a “tax cut” and more of a “tax cut for the rich act”.
