On Capitol Hill over the last two
weeks, there has been a feverish pitch to change the tax code. Among the
proposed reforms are a reduction in the corporate tax rate, increased standard reductions
and lower rates, and an elimination of the estate tax. For lower to middle
class residents the child tax credit will go up to $1,600 from $1,000, there
will be a $300 credit to non-child dependents, and mortgage deductions will be
capped at $500,000. These are just some of the big bullet points of the tax
reforms. The impetus for such tax policy is to spur economic growth and to make
the U.S market more competitive in terms of the corporate tax rate, which would
be reduced to 20% from the current stated rate of 35%. These changes are
estimated at a cost of about a $1.4 trillion addition to the deficit, but
congressional proponents of the new tax reforms believe that increased economic
growth and GDP will more than compensate for the expenditure. Taking what we have learned in the various models, and focusing on the laborer, would a lower corporate tax rate lead to higher wages due to a trickle-down
effect from corporate savings? https://www.cnbc.com/2017/11/01/the-us-economy-is-strong-and-its-about-to-get-even-stronger-atlanta-fed-model-shows.html
https://www.cbsnews.com/news/gop-tax-plan-5-ways-the-proposed-tax-cuts-could-impact-you/
The effect on wages from this tax break is dependent on how the company will use these extra funds. If the company were to invest heavily within the domestic parts of the company, then it would be likely to see an increase in jobs, and potentially an increase in real wages. However, it would be just as likely for a company to invest further in other offshoring enterprises. So while this theoretically will benefit the United States, it can be detrimental based on the amount that the tax break stays within the United States.
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