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A Greenhill take on Trump’s tax plan

The Republican Tax Cut Plan was passed by the United States Congress in December.

The bill has caused divide within Washington, with President Trump tweeting about it as the “Biggest Tax Bill and Tax Cuts in history.” In a tweet, former presidential candidate and Vermont senator Bernie Sanders called it “a moral abomination.”

The new tax plan lowers the corporate tax tremendously which is a big advantage for companies. As the New York Times reports, the plan also tries to simplify the tax system by decreasing the tax brackets, divisions at which tax rates change in a progressive tax system, from six to four.

However, the changes are more beneficial for corporations and wealthier people than for the middle or lower class.

“I think that is definitely a tax plan that is more beneficial to corporations than to the individual at least in the middle or lower class,” said Upper School Economics teacher Adrian Martinez. “I don’t see that as a huge problem, because I think the wealthy pay the lion share of the taxes in the US.”

“I didn’t like it,” Upper School History teacher David Lowen said. “It seems to be very pro-business.”

One of the several changes the new tax plan incorporates is the reduction of the corporate tax, which is a direct tax imposed on the income or capital of corporations, from 35 percent to 21 percent.

In a December meeting at the White House, Trump said that this change in the corporate tax is “probably the biggest factor” of the plan.

The hope, according to Trump, is that companies are coming back to the United States because the tax burden has been lowered, which results by following his theory of trickle-down economics, that says by reducing taxes the economy will be stimulated, in more jobs.

“Companies…are taking the tax breaks to buy back stocks, which would increase dividends for stockholders. If the corporations would take the money and reinvest it in upgrading factories, hire more people – yes that would work, but they don’t do that,” Mr. Lowen said.

Another big change the tax plan includes is the reduction of the tax brackets from six to four. The idea behind that is to simplify the tax code . These changes in the brackets would have a positive effect on the middle class and upper class, because people with a middle-class income would get a tax break and the highest tax bracket would only apply to people with an income over $1 million.

On the other side, people with a lower income have to face a small increase. Is it justified to cut taxes for the wealthy? Some people might argue that the tax load currently carried by the upper-class makes a tax cut for them reasonable. CNBC reports that in the US, the richest one percent payed 45.7 percent of the individual income taxes in 2014. For reference, The Guardian reports that in the UK the burden for the top on percent is only 27 percent .

On the one hand, many tax cuts only apply to the wealthy, but on the other hand as government spending increases, it will lead to a bigger deficit. In fact, the Congressional Budget Office estimates an increase of the deficit by $1.4 trillion over the next 10 years.

Another big effect of the Tax Plan is that it will increase the Child Tax Credit, a cash back into the pockets of American parents when they file their tax returns. This increase, that applies to every family with children under the age of 17, is especially beneficial to all families with an annual income under $19,050. However, this policy will only last until 2025 if it isn’t extended.

The Affordable Care Act takes a direct hit. The Tax Plan repeals the individual mandate, which compels most Americans to buy health insurance or pay a fine. According to the Washington Post, this would free more than $300 billion in government funding for other projects of the Republican party. On the other hand, it would also make it less likely that young, healthy people would purchase insurance. This could damage the system because it depends on young people who pay in.

“To hide from the public that they are severely cutting the foundation of the Affordable Care Act is, to me, clearly irresponsible,” sophomore Josh Leffler said.

Though he sees the effects on the Affordable Care Act very negatively, overall, he said that both parties have contributed to the situation.

“The largest problems with politics in this country, especially with the tax bill, is the lack of cooperation between Democrats and Republicans,” Josh said.

Originally published in the February 2018 print issue

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