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GOP Tax Plan: Trump’s First Win, or Just Another Fluke?

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Jack Nicastro ‘19 agrees wholeheartedly with the recently passed tax bill.

Jack Nicastro ‘19 agrees wholeheartedly with the recently passed tax bill.

Pietro Topa

Pietro Topa

Jack Nicastro ‘19 agrees wholeheartedly with the recently passed tax bill.

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On December 20, 2017, the United States Congress voted to pass a tax reform bill in both the senate and the House of Representatives. This bill includes a multitude of broad tax cuts, as well as a repeal of the Obama-care individual mandate. This is, in my opinion, one of the best proposed tax plans since the Tax Reform Act of 1986, passed under the Reagan Administration, which lowered the top Federal Income Tax Rate from 70% to 38%. This plan has received critical acclaim from many with the president calling it “an incredible Christmas gift to hard working Americans.” This bill represents a major victory for the Republican party as well as for President Trump.

The comprehensive tax reform bill includes a litany of simple and intelligent changes aimed at improving conditions for small business owners, as well as owners of smaller corporations that are stymied by the current tax rates. The bill also aims to make our tax rates more competitive with those of other countries. Some of these changes include a reduction of the current small business tax from 30% to 25% and a reduction of the corporate tax rate from 35% to 21%. In comparison, the European small business tax average is 22.5% and corporate tax rate is 26%.

“I think it’s a textbook example of government overreach.”

The cuts to business taxes are being seen as a good thing by many economists. Giorgio Topa, a Vice President at the Federal Reserve Bank of New York, stated that, “The proposed tax cuts should encourage investment.” (This statement by Mr. Topa in no way represents the opinion of the Federal Reserve Bank of New York, and in the spirit of full disclosure, Mr. Topa is the father of the author of this article). Since many have seen the American people’s unwillingness to spend during this economic up-tick as a problem that could lead to a decline in growth, this is very encouraging.

While most people agree with the reduction of the small business tax, many people on the Democratic side of the aisle have voiced their concern over the reduction of the corporate tax rate. But despite what those on the left say, corporations do not represent the 1%. In fact, that could not be further from the truth, as most corporations employ between twenty and 500 employees and operate just like small businesses does, this according to the Internal Revenue Service (IRS). What people need to understand is that while the word “corporation” sounds big and scary, it is actually just a designation that can be held by pretty much any business, and allows it to act as a single entity.

Furthermore, most corporate business owners would not be taking the money saved from the 15% tax reduction and keeping it for themselves, but rather, using that revenue to pay for new employees and better benefits for those employees, as well as the creation of a better product for consumers. This kind of effect can be seen in The United Kingdom, which made a similar change in 2010, leading to a massive wage increases for British employees in the years after.

Another change in the new tax bill is an increase to the personal deductions that could be taken by an individual of $5,650, meaning that, now, the first $12,000 of income that a person earns would not be taxed, instead of the previous $6,350. This aims to help the lower class and middle classes while having no real effect on high income earners. This is because high income earners earn so much that a deduction of $12,000 does not affect the amount they pay by a significant amount. With regards to this Mr. Topa stated that, “It looks like poorer households will benefit from this plan.” This is inspiring since many were claiming this bill would only help the top 1% of Americans.

Despite all of the positive changes that this bill brings, it is very worrying to see projections of the increase to the deficit that this new tax bill would cause, especially for supporters of a small government, like myself. The estimate given by the Congressional Budget Office (CBO), is of an increase to the deficit of $1.4 trillion over the course of the next ten years.

The increase to the deficit is a major problem for Republicans because it makes them look hypocritical. Most Republicans voted not to raise the debt ceiling earlier this year, but now they are voting for a bill that would raise the deficit. However, there is a simple fix to this massive problem. They could include a requirement that the budget for fiscal year 2018 reconcile this increase in the deficit. This would be a win-win for Republicans as they would stay revenue neutral and be able to cut some of the welfare programs that they find unnecessary. It remains to be seen, however, whether or not this will happen, but it does seem difficult for a tax bill to pass both chambers of congress without a plan to address the deficit problem.

Another major step that this bill  takes is to repeal the individual mandate of Obamacare. An individual mandate is when a government forces you to purchase a good or service under the threat of a fine. Republicans ardently oppose this portion of Obamacare, and for good reason. To many, including myself, a government mandating the purchase of a product is a violation of the essential rights outlined in the Constitution as well as the mantra of “life, liberty, and the pursuit of happiness.” Jonathan Nicastro ‘19 said, “I think it’s a textbook example of government overreach. It’s not only unconstitutional but immoral as well,” which represents the general feeling of most Republicans in the United States of America.

Furthermore, according to an ongoing Gallup poll of the American people, the number of persons who are uninsured has begun to rise again. This is not because the individual mandate is too weak, but rather because the stipulations of Obamacare have created an economic environment wherein the insurance premiums for the average middle income American have gone up. According to The New York Times, premiums for a middle income family have risen from $1000 to over $2400, on average. Even if the individual mandate is not removed, the number of uninsured persons will go up, which leads many to question why it should be maintained. This also helps to make sure that the deficit does not balloon too much, as the CBO predicts the repeal of the individual mandate will increase revenue by some $350 billion.

These reforms are a step in the right direction for the economy of this nation. Our economy has seen a certain boom in the last year, with many, including CNN, attributing at least a portion of it to Donald J. Trump. It is apparent to me that this administration really needed to make sure this bill was passed. In the last year of the Trump presidency we have seen many attempts to achieve the Republican goals set forth under Obama, none of which succeeded. It was becoming necessary for Trump to shore up his voter base by realizing some of the promises that he delivered on the campaign trail.

In getting this comprehensive tax bill passed by both chambers of congress and signed into law, the Republicans have achieved a major victory, one that could help them gain momentum and turn this administration around. Up and until now, the Trump Presidency has had several policy failures, but now there is hope that major policy changes are on the way, and that this country will get back on track. This bill represents a win for President Trump, for Republicans, and for the American people.

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GOP Tax Plan: Trump’s First Win, or Just Another Fluke?