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A new income tax policy has been proposed in the legislature. The policy would require individuals with incomes of $15,000 or less to pay no tax and for those with incomes above $15,000 to a pay a tax of 10% only on the part of their income that exceeds $15,000. Members of the legislature are unsure of the impact that the proposed policy would have and have asked the Fiscal Research Division to investigate. The task has been assigned to you. You report directly to the direct of the division. Your analysis of the tax should address the following questions: 1. Could an individual pay an average tax rate of 7.5% under this system? 2. Could an individual pay an average tax rate of 10% under this system? 3. What average and marginal tax rates would individuals with these income levels face: $10,000, $20,000, $40,000, and $150,000? 4. Are there concerns about equity with the policy?

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Yusra Anees
Yusra AneesLv10
28 Sep 2019

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After reading the article, post substantive comments on the economic impact of the Tax Cuts and Jobs Act of 2017.
 
THE ECONOMIC IMPACT OF THE TRUMP TAX CUTS
April 25, 2018
The Economic Impact of the Trump Tax Cuts
By Hilary Schmidt, International Banker
 
On December 22, US President Donald Trump signed into law the Tax Cuts and Jobs Act of 2017. The legislation is one of the most radical changes to fiscal policy the United States has undertaken in decades, with sweeping amendments implemented across the entire breadth of the tax code. Indeed, in his State of the Union Address, Trump called it the biggest tax cuts and reforms in American history. As such, its impact is likely to be felt throughout the economy for quite some time to come.
 
It is arguably the cut in a corporate tax that forms the centrepiece of this new legislation, with the rate being cut from 35 to 21 per cent. That puts the new rate broadly in line with the worldwide average, which as measured by the Tax Foundation across 202 jurisdictions currently stands at 22.96 per cent or 29.41 per cent when weighted by gross domestic product (GDP). Corporations will also stop having to pay corporate tax on any income earned from foreign operations, while such money that is brought back home will be taxed between 8 and 15.5 per cent, significantly lower than the 35-per cent tax they are currently paying.
 
Republicans believe such substantial cuts will spur a massive influx of business investment that will eventually lead to higher average wages for Americans. For example, Texas Congressman Mike Conaway stated, It's in all of our best interest to have these tax cuts for corporations so that they will have more money to invest in their business and pay their workers. But much of the research conducted thus far suggests otherwise; the Center on Budget and Policy Priorities, for instance, recently concluded that workers would receive a maximum of only a quarter of the benefits from tax cuts; and even then, it is most likely to be the higher earners that would be the biggest beneficiaries.
 
Another piece of evidence to which analysts are pointing is data from S&P Dow Jones Indices, which shows that non-financial companies in the S&P 500 are already flush with cash at the moment, having between them an estimated $1.63 trillion. And despite this vast sum of cash, an investment boom has not transpired. Indeed, some top companies have made it explicitly clear that any tax relief they receive from the reforms will be primarily used to increase dividends and buy back stock to boost share prices. Amgen CEO Robert Bradway, for example, said We've been actively returning capital in the form of growing dividend and buyback, and expect us to continue that. And in terms of what businesses planned to do with any profit returned from abroad, a Bank of America Merrill Lynch survey of more than 300 CEOs found that paying down debt and stock buybacks were by far and away from the biggest priorities for businesses.
 
The other major pillar of the reform is the cuts that have been enacted for individual income earners, with middle-class taxpayers earning between $19,050 and $77,400 per year receiving a cut in tax from 15 to 12 per cent. Higher-bracket earners, meanwhile, will see their tax rates go from 25 to 22 percent (for incomes between $77,400 and $165,000); 33 to 24 percent ($165,000 to $315,000); and 39.6 to 35 percent ($400,000 to $600,000). And as far as analysis from the Tax Center is concerned, after-tax income will increase by an average of 2.2 per cent across all groups. However, all of this changes after a few years, due to official budget rules that limit the cost of the bill to $1.5 trillion in total which therefore means that to make the corporate tax cuts permanent, the individual tax relief will expire by 2025. As such, a tax increase will likely result by 2027, which, according to projections by the Tax Policy Center, will impact 53 per cent of Americans.
 
Whether the overall impact will be a net positive or negative for the US economy remains to be seen at this stage, therefore. While most analysis produced to date agrees that economic growth will receive a boost in the short-term, the predictions that have so far come in have been decidedly more mixed and less sure for longer time horizons. The non-partisan Joint Committee on Taxation of the US Congress expects the gross domestic product to be 0.8 per cent higher on average each year during the next 10 years than baseline forecasts, thanks mainly to an expected increase in labour supply and business investment. According to the independent non-profit research organisation the Tax Foundation, meanwhile, the plan will primarily reduce marginal tax rates and the cost of capital. In turn, this will lead to a 1.7-per cent rise in GDP over the long-term, a 1.5-per cent increase in wages and a further 339,000 full-time equivalent jobs. This year, moreover, will see GDP growth being posted at 2.45 per cent, compared to baseline growth of 2.01 per cent.
 
But most analysts see the economic benefits tapering off much sooner than the 10 years asserted by the Joint Committee on Taxation. Goldman Sachs, for example, believes the tax cuts will only slightly boost growth in the short-term before fading quickly. Alec Phillips and Blake Taylor, analysts on Goldman's US economic-analysis team, stated in December that the bank's estimate of the growth effects of the legislation in 2018 and 2019 would be 0.3 per cent per year, before dropping off. Indeed, Phillips and Taylor warn that the legislation may end up damaging the economy in the long run: We note that the effect in 2020 and beyond looks minimal and could be slightly negative.
 
Some also point to the fact that the cuts will drastically deepen the national debt, with Maya MacGuineas of the Committee for a Responsible Federal Budget estimating an additional $1.5 trillion will be added to the $10 trillion already forecast for the next decade. As she explained, Instead of trickling down economic growth, the House plan will unleash a tidal wave of debt that will ultimately slow wage growth and hurt the economy. She seems to have a point the debt today is 77 per cent of GDP, much higher than the 31 per cent in place when the 2001 Bush tax cuts were passed, and the highest it has ever been save for the period just after World War II. What's more, given that interest rates could well rise faster than expected as a result of the likely ballooning of the debt, it may well dampen the expected boost to business-capital expenditure, consumer spending and wage growth.
 
Indeed, the arbiter of monetary policy itself, the Federal Reserve, has indicated that it remains somewhat unsure of the overall impact of the tax cuts. According to the released minutes of the central bank's December meeting, growth will only modestly be boosted, with members of the Fed's board and presidents of its member regional banks saying they expect real GDP growth of just 2.2-2.6 per cent and a median expectation of 2.5 per cent growth for this year. The comparatively tempered projections are reflective of the debate within the Fed over just how much of a boost business investment and consumer spending will receive from the tax cuts.
 
According to the minutes, Many participants judged that the proposed changes in business taxes, if enacted, would likely provide a modest boost to capital spending, although the magnitude of the effects was uncertain. While they are highly likely to have a positive effect on economic growth, the Fed also warned that much of the extra cash that is generated is more likely to be utilised for mergers and acquisitions or debt reduction and stock buybacks. Moreover, the boost to consumer spending may have already occurred in part on the back of realised future tax-cut expectations.
 
Ultimately, it may be too soon to make any firm conclusions about how impactful the tax cuts will eventually be; but given that the US economy is already experiencing strong economic growth, and given that virtually all the signs point to an economy operating at full employment and therefore, at full capacity such sweeping reforms that have been at least partly designed as an economic stimulus could well be dangerous. The impact on inflation and debt may well force the Fed to hike rates more than the three times that back in December it had projected for 2018. Time will tell.

1. Discuss some of the policy players (groups) that have been involved in the tobacco debate, their values, and their efforts to sway elected officials.

A. What role have the courts played in tobacco policy?

B. What are some of the long-term effects of the policy change regarding tobacco? (cigarette taxes - How High Are Cigarette Taxes in Your State? June 3, 2015 Scott Drenkard For this week’s tax map, we take a look at cigarette tax rates across the country, which vary widely from state to state and are levied on top of a federal rate of $1.0066 per 20-pack of cigarettes. (Click on the map to enlarge it. Reposting policy) Cigarettes are taxed the highest in New York, at $4.35 per pack. New England states round out the remaining top four, with Massachusetts charging $3.51 per pack, followed by Rhode Island ($3.50) and Connecticut ($3.40). On the other end of the spectrum, Missouri levies the lowest tax on cigarettes at 17 cents per pack – trailed closely by Virginia ($0.30), Louisiana ($0.36), and Georgia ($0.37). Not shown here are local cigarette taxes, which can be substantial. In Chicago, Illinois, the combined state, county, and municipal taxes total to $6.16, while in New York City, smokers pay $5.85 per pack. States didn’t start taxing tobacco until the 1920s, but by 1969, each state and the District of Columbia had followed suit. Although cigarettes are already one of the most heavily taxed consumer goods in the U.S., many states continue to target smokers with increased rates. Many states use collections from tobacco taxes to fund their public school systems, which we have pointed out could cause budgetary problems as cigarette tax revenues are on the decline as less and less people smoke. Moreover, evidence shows that wide differentials in cigarette taxes across states have opened up a black market for smuggling, with criminals obtaining cigarettes in low-tax states and selling them in high-tax states. Finally, taxes on cigarettes disproportionately affect low-income residents. Read more about cigarette taxes here. Follow Scott on Twitter..)

C. As one policy is implemented, often alternatives arise. As tobacco use has declined, what are new policy concerns about e-cigarettes and what actions have been taken?

1) Which of the following explains the distribution of income?

Select one:

a. a positive externality

b. The person on which the final burden of a tax falls

c. An unintended result of taxation

d. The way that income is allocated to individuals, families, and other groups

2)Why can suppliers of goods can more easily shift the incidence of a tax to the consumer if the demand of the good is inelastic?

Select one:

a. Because markets that sell inelastic goods have so much competition, that a tax increase would not be noticed.

b. Because the tax would make marginal utility equal marginal benefit.

c. When taxes are levied, companies legally have to increase their prices.

d. Because the consumer needs the good regardless of the new price.

3)Where is the power to issue taxes granted to the federal government?

Select one:

a. The sixteenth amendment to the constitution

b. The bill or rights

c. The 20th amendment to the constitution

d. The declaration of independence

4)

What are intergovernmental revenues generally used to do?

Select one:

a. Sanitation workers’ benefits

b. To create national parks

c. Educate and provide public welfare

d. Provide public transportation for all state employees

5)

One of the noted advantages of a flat tax is

Select one:

a. all members of congress generally agree with issuing a flat tax

b. The flat tax offers a relatively simple tax process

c. There is a defined and agreed upon tax rate already in place.

d. The flat tax removes behavior incentives that are built into the tax code

6) Which of the following is TRUE regarding the “incidence of a tax”.

Select one:

a. This is a tax paid by all people to establish social security payments

b. This refers to the individual(s) who take the final burden of the tax

c. This is a loophole designed to help the rich

d. This is a tax on individuals who run oligopolies

7)

Person “A” earns $10,000 a year and pays 10% of his income in taxes. Person “B” earns $60,000 a year and pays 20% in taxes. Which kind of tax is being represented?

Select one:

a. A regressive tax

b. A progressive tax

c. A loophole tax

d. A flat tax

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