Changes Made by TCJA Relating to Income Tax Rate for Individuals Essay

Paper Type:  Essay
Pages:  6
Wordcount:  1452 Words
Date:  2022-09-20

Introduction

Tax Cuts and Jobs Act (TCJA) has several impacts on the US income tax. Individuals experience changes including suspended personal exemption, tax brackets and rates, increased standard deduction, reduced types and amounts of allowable itemized deductions (Avi-Yonah, 2018). Single taxpayers file tax brackets and rate half of the married ones who file as joint taxpayers. More so, highest tax brackets and rates relieve taxpayers from marriage penalties. TCJA provides for an increase in the exemption amount. Also, the repealed personal exemption prohibits individuals from claiming it. As a result, taxpayers shift to Alternative Minimum Tax (AMT).

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Additionally, most taxpayers prefer standard deductions over itemized deductions which are allowable. The shift is due to changes in deductions on mortgage interest, tax limitation on real property and limited income tax which is nonbusiness or state related. Standard deductions simplify the tax filing process. However, they take away expenses which reduce individual's income tax. Moreover, standard deductions have a negative impact on the financial decisions to procure real property. Also, they reduce the tax benefits which support charity contributions leading to minimal charitable giving.

Arguments Supporting the Changes

The TCJA leads to an increase in pay. Economists have several theories that explain the rise in pay. While they argue why wages are not propionate to the high labor market, their primary argument is that cuts on taxes especially the high-end ones contribute to a higher paycheck (Sammartino, Frank, Philip and David 2018). Business capitalization increase is resulting in high competition for talents among companies. Organizations go to an extra mile of training their employees to equip them with knowledge and skills which boots their competence. As a result, business activities increase in the market. Therefore, workers demand higher payments.

TCJA contributes to demand increase. People buy more goods and services in large quantities. Cut on taxes means that individuals have more disposable income or rather they are willing to spend more money. For example, buying houses from estates before was very difficult. As a result, many people would prefer building themselves houses that fit their pockets. However, when individuals have more disposable income, it means they are in a position to buy such luxuries. Therefore, most people are now able to procure full set houses in estates instead of encountering expenses on small projects of constructing shelters.

Arguments Against the Changes

As TCJA provides tax cuts to people, some of them may fail to see such cuts in later years. The law is set to be active for eight years. Therefore, people will be required to pay higher taxes nine to come. A report given by Monmouth Poll shows that most Americans say their taxes will go up later after the period expires. Also, they claim the policies made by Tramp do not help the middle class. Most Democrats view the policies as nothing less than deeds conducted by Republicans as a way of gaining political victory. Therefore, the tax cuts pose a great threat to future income for individuals.

Another argument relates to the fact that some of the lawmakers do not understand how the policies affect individuals. Some economists who try to teach the public about the law say that there is hope of it becoming as popular as the demand to embrace it increases (Mertens Karel, 2018). However, there is much contradiction from the news that lawmakers do not understand the benefits of the policies to the taxpayers. Consequently, taxpayers do not take it likely that those who lead them do not understand the law. More so, taxpayers fear that the lawmakers most of which are Republicans want to mislead them and favor themselves.

Personal Opinion on the Proposal

TCJA has seen significant changes in individual income tax. It is very important for taxpayers to ensure they plan their income taxation by the requirements of the law. Also, they should remain vigilant and observant to take those advantages that may avail themselves as a result of new opportunities brought by the law. They should realize the opportunities and utilize them fully. More so, TCJA policies on individual tax income rates are functional for several years thus taxpayers should not mostly rely on them.

Changes Impacting Corporations

Changes Made by TCJA Relating to Corporations

The Corporate AMT repealed. TCJA imposed Corporate AMT at the rate of 20% before 2018. As from 2018 henceforth, Corporations should make full use of their credit carryovers. The period allocated for Corporate AMT is about three years running from 2018 to 2021 years of taxation. TCJA has introduced new 21% Corporate Tax compared to previous varying rates on different income levels. Also, the new rate of 21% applies to Personal Service Corporations (PSCs).

TCJA has also lead to a significant reduction on corporate dividend deduction. It requires those Corporations that used to receive dividends from other Corporations to partially deduct those dividends. An 80% deduction rule applied to Corporations owning not less than 20% stocks of other Corporations. If the Corporation owned less than 20%, then deduction was 70%. As from 2018, the deductions are 65% from 80% and 50% from 70%. The deduction means Corporations will have more income.

Arguments Supporting the Changes

TCJA has realized an increase in investments. Republicans and the Senate believe that a cut in the Corporate Tax and redesigning pass-through income enables private investors to profit (Page, Benjamin R., et al., 2017) Consequently, individuals and companies find it advisable to invest more money while increasing the benefits of their investments. Proponents argue that entrepreneurs are likely to open new businesses if they can get more returns indeed. Additionally, active investors will issue money to such entrepreneurs and businesses which prove to be profitable in the market. Therefore, investments will increase.

The TCJA leads to an incredible increase in liquidity. Market elasticity means that businesses can retain or keep much of their profits. As a result, businesses can expand their scope of activities. Reduced corporate tax enables businesses to form more joint ventures and partnerships and acquisitions since they have more profits to purchase the following (Beer, Sebastian, Mr. Alexander, and Ms. Thornton, 2017). Organizations thus increase because of the ability to make more profits thus offsetting greater risks. Although every venture has a certain level of risk, companies chose to raise returns by lowering taxes.

Arguments Against the Changes

Much of the corporate wealth is not in use. The US has about $2 trillion assets from its corporations. It is said to be more than the GDP of Canada. However, the wealth is in banks and many portfolios which are waiting for the perfect investment time. The following happens since companies invest when they feel like doing so. While businesses are creating opportunities to meet market demand, consumers do not increase their demand to meet the opportunities (Wagner, Alexander F., Richard J, and Alexandre, 2018). Consequently, liquidity increases in a vacuum. Therefore, the cut corporate taxes only add assets to the existing ones instead of creating opportunities or demand.

The tax cuts on corporate do not facilitate economic growth. GDP growth rates do not correlate with corporate tax rates. Tax cuts only lead to sluggish growth in the economy. They cause downturn movement on the economy. Although many Republicans argue that changes in tax corporations will see a rise in economic growth, economists see them as non-contributors to economic growth. Economists say that corporate tax cuts may be a downfall for economic growth within the US. Moreover, they view them as a part of a complicated structure of incentives and demand in the country.

Personal Opinion on the Proposal

Corporate tax cuts are advantageous to many businesses but also risky to some, especially in passive income cases. Also, the corporate tax cuts will exist for several years working till 2025. They also stand a risk termination by the 2020 Congress. As a result, business people should not form their business objectives concluding the Tax Cuts and Jobs Act. Instead, they should consult the IRS guidelines in the decision-making process. Additionally, the greatest advantage in forming a company lies in the ability to reduce personal liability of the shareholders. The advantage is not affected by the law.

Works Cited

Avi-Yonah, Reuven S. "The International Provisions of the TCJA: Six Results after Six Months." (2018).

Beer, Sebastian, Mr. Alexander D. Klemm, and Ms. Thornton Matheson. Tax Spillovers from the US Corporate Income Tax Reform. International Monetary Fund, 2018.

Mertens, Karel. The Near-Term Growth Impact of the Tax Cuts and Jobs Act. No. 1803. 2018.

Page, Benjamin R., et al. "Macroeconomic Analysis of the Tax Cuts and Jobs Act." Washington, DC: Brookings-Urban Tax Policy Center (2017).

Sammartino, Frank, Philip Stallworth, and David Weiner. "THE EFFECT OF THE TCJA

INDIVIDUAL INCOME TAX PROVISIONS ACROSS INCOME GROUPS AND ACROSS THE STATES." (2018).

Wagner, Alexander F., Richard J. Zeckhauser, and Alexandre Ziegler. "Unequal rewards to firms: Stock market responses to the trump election and the 2017 corporate tax reform." (2018).

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Changes Made by TCJA Relating to Income Tax Rate for Individuals Essay. (2022, Sep 20). Retrieved from https://proessays.net/essays/changes-made-by-tcja-relating-to-income-tax-rate-for-individuals-essay

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