The Tax Cuts and Jobs Act was introduced into the House last week, and since then, numerous think tanks and organizations have had time to study it in depth and precisely model it’s impact on the economy. The Tax Foundation triumphantly announced that – with passage of this legislation (as released, and written, without modification) nearly 1 million new jobs will be created.
Not only that, the economy is set to catch fire, and grow at an unthinkably enormous 3.9% The bill will cut the tax burden on employers from 35% down to 20%, and simplify the tax code – so that Americans can file on a postcard. This will all be paired with a hefty tax cut to the middle, and working classes – reducing the tax burden by over $1K per family, on average.
“The pro-growth tax plan would simplify the tax code by eliminating most itemized deductions, while reducing marginal tax rates,” the Tax Foundation states.
The foundation also estimates that the tax reform proposal would lead to 975,000 new full-time jobs that would be created in the long run. It would also boost the gross domestic products by 3.9 percent, and after-tax incomes for Americans would grow by 4.4 percent in the long run. In the next 10 years, the Tax Foundation estimates that the average after-tax income for a middle-income family would grow by $2,598.
“The increase in family incomes is the result of both the income tax cuts and the broader rise in productivity and wages due to economic growth,” the analysis in detail explains. “These estimates take into account all aspects of the Tax Cuts and Jobs Act, including changes to the individual and corporate tax codes.”
“As the Tax Foundation analysis shows, the corporate tax changes are driving the economic stimulus,” said Wayne Winegarden, a tax reform expert at the Pacific Research Institute. “On the individual side, it appears that political considerations dominated economic fundamentals.”
“It would have been a much stronger proposal had the plan replaced all income and payroll taxes with a simple flat tax,” he added. “The inclusion of payroll taxes, which are regressive taxes paid mostly by workers, would have gone a long way in addressing the concerns that lower-income workers benefit as well.”
The Tax Foundation analysis also reflects similar findings into a study that was produced by the Council of Economic Advisers released the previous month. The study analyzed the effects of reducing the corporate tax rates from 35 to 20 percent and found this could lead to even higher wages and increasing GDP growth.
In the long run, reducing the corporate tax rate could lift GDP to a range of 3 to 5 percent.
“We can be highly confident that the level of GDP will be 5 percent higher 10 years from now,” said CEA chairman Kevin Hassett. “We would ramp up to that with steady growth of about 0.5 percent per year higher just from the corporate tax side. So obviously the president’s plan is already having a positive effect on economic growth.”
In addition, the study also found that Americans’ wage and salary incomes could increase by roughly $4,000.
“We find a very strong agreement across the different classes of models that the average American household yearly earning will conservatively go up by about $4,000 if the corporate side of this proposal becomes law,” explained Hassett. “Once it hits that $4,000 it will continue to provide yearly increases from there and wages and incomes would grow.”