What are your first thoughts when you hear the words “tax reform?” I know for most people, there’s complete confusion and hesitation. Taxes are scary and tax reform sounds intimidating. With Trump’s new tax reform, it’s more important than ever for this generation of college students to understand what’s happening in the economic world. There’s no reason why we should be oblivious to what his tax reform means for us and for our future.
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So what does tax reform mean? Tax reform is the way the government revises how tax laws are imposed.
The guiding principle of Trump’s tax reform is tax cuts for all, according to The Washington Post. For those of you who do not know, a tax cut is just a reduction in taxes. The immediate effects of a tax cut are a decrease in the real income of the government and an increase in the real income of those whose tax rates have been lowered. Trump’s plan is to sharply reduce taxation of business income, according to The New York Times. This plan will primarily benefit the share of population that owns the majority of corporate ownership.
One of the personal tax changes includes repealing the estate or “death” tax and the generation-skipping transfer tax. The estate tax is the tax on an heir’s inherited portion of an estate if the value of the estate exceeds an exclusion limit set by law, according to Investopedia.
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There’s so much more to this tax plan than what I’m saying, this is just so you have a general idea and some type of definition for the jargon you may see when reading any articles about tax reform. So what does all of this mean for us?
Gregory Daco, the chief U.S. economist at Oxford Economics, states that, “We’re really talking about a small boost to the economy if this tax reform does go through,” in an article with The Washington Post. Economists say that most of the gains from the plan will come from lowering business taxes; details indicate that the top corporate tax rate will fall from 35% to 20%. However the lower the rate goes, the more money the government loses. So big companies will benefit from this plan, but the details regarding how the middle class and lower class will be affected are murky at best. According to Investopedia, the plan would benefit the highest earners more than anyone. The top 1% would gain 8.5% to 10.2% whereas the bottom four income quintiles would gain from 0.% to 1.2%. According to the Tax Policy Center, at least 8.5 million households would experience tax hikes, which are the amount by which taxes are increased, under the plan. So we’ll have to pay close attention to what other economists says and to what Trump says.
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