I decided to cover was the Tax Cuts and Jobs Act of 2017 and 2018 that was administered by the Trump administration. This policy was one of the biggest tax legislations seen in the US in over two decades. The Act sees a reduction in income taxes for most people and many corporations, while also getting rid of numerous tax breaks. Other affected areas are foreign income, alternative minimum tax, and estate tax exemptions. The alternative minimum tax and estate tax exemptions both see increases. The Tax Cuts and Jobs Act was one of President Donald Trump’s first and most influential policies to date.
Furthermore, Trump has been quite vocal in his support for the Act. Here is one of President Trump’s many comments on the Tax Cuts and Jobs Act: ‘When we began our push for tax cuts, I promised that our bill would result in more jobs, higher wages, and tremendous relief for middle-class families, and that is exactly what we have delivered” (The White House). Whether the President’s sentiment is true will be further analysed later on in the paper, however there is no denying the passion he has in The Tax Cuts and Job Act.
In a general sense, tax cuts usually have more of a positive effect on an economy than a negative one. Cutting taxes puts more money in the pocket of the consumer, which in turn, they can use to spend in the marketplace. In regards to our AS/AD model, The Tax Cuts and Jobs Act will likely result in a rightward shift in aggregate demand as demand will increase due to the tax cuts resulting in more disposable income for the consumer.
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Since demand will increase because people are spending more money, aggregate supply will also see a rightward shift. If people are spending more, there needs to be enough product to go around, which will cause aggregate supply to increase. Shifting focus onto the Keynesian Aggregate Expenditure model, the aggregate expenditure will surely see an upward shift from this new policy. AE is a measure of every expenditure that has taken place in a specific time period, which means that a tax cut will increase aggregate expenditure. In the AE equation, taxes are identified as a negative, so reducing taxes will cause the AE to rise.
Based on President Trump’s own words, he expects this policy to result in more jobs, higher wages and relief for the middle class. I believe the policy will increase jobs and wages, as an increase in supply and demand usually achieves these objectives and supply and demand are expected to increase based on this policy. I also believe the tax cuts will provide relief for the middle class because the tax cuts will give more money to the consumers and allow them more financial flexibility. Therefor, if everything goes according to plan, The Tax Cuts and Jobs Act should achieve all of its declared goals.
Obviously, a tax cut will have some disadvantages as well, including a reduction in government spending. A decrease in government spending can result in many significant societal issues being ignored or lacking proper funding to fix the problem. Government programs may also see a decrease in funding. While the government spending could be an issue, I firmly believe that The Tax Cuts and Jobs Act will be an outstanding policy for the United States of America.
