Part B1 - Trump Economic Policies & The Tax Cuts & Jobs Act Of 2017 - So Far So Good - Last In A Series Of Three

Last week Google was unable to post the entire post I intended so the last in the series of posts on the economy

is presented in three parts, A, B1, & B2. 

Part A pertaining to Reducing Regulation & Controlling Regulatory Costs was posted on RTE on January 23.  Parts B1 & B2, below, pertain to 1) Lowering Individual Income Tax Rates, 2) Lowering The Corporate Income Tax Rate, 3) Full Expensing, 4) Repatriating Earnings, & 5) Opportunity Zones.

 

 

Parts A, B1, & B2 taken together make up the entire post that should be considered the last in a series of three that covers the features of the Tax Cuts & Jobs Act of 2017 (TCJA) that blend in with the Trump administration's policies & practices that will enhance the productivity growth component of the overall economic growth equation thereby propelling continued economic growth in America forward.

 

The first two posts in the series (posted on January 6 & 13) respectively covered the importance of continued economic growth in America & the headwinds facing economic growth.

 

1.  Lowering Individual Income Tax Rates

 

The lowering of individual income tax rates has an obvious appeal to virtually every American taxpayer – there is nothing stopping anyone who feels they are not paying enough income tax to make their own donation to the Treasury.

 

But senior citizens, who are mandated to make Required Minimum Distributions (RMDs) from IRAs & 401(k)s, have come to realize one of the the main benefits from such tax deferred programs – namely, to make tax saving deposits when in a high marginal income tax bracket & withdrawals (RMDs) when in a lower marginal income tax bracket. 

 

As inclusion of RMDs in taxable income pushes Baby Boomers into ever higher income tax brackets year after year in retirement the lowering of individual income tax brackets by the new tax bill is a welcome feature for many senior citizens.

 

2.  Lowering The Corporate Income Tax Rate

 

Before the passage of the Tax Cuts & Jobs Act of 2017 the U.S. had the highest federal corporate income tax rate in the world @ 35% – add in state corporate income tax rates & the average was 38.9%, about 15 percentage points above the 34 countries that makeup the Organization for Economic Cooperation & Development (OECD) average of 23.8%, excluding the U.S. in the calculation, & 4.5 percentage points higher than the second highest country, France.

 

The TCJA reduced the federal corporate income tax to 21% thereby making the U.S. more competitive worldwide.  See graphic below.

 

click on graphic from WSJ to enlarge (includes federal & state corporate income tax rates)

 

Now being more competitive means many good things like companies can reduce their prices by subtracting the portion of eliminated corporate income taxes previously embedded in prices thereby providing the opportunity to increase market share.  The graphic below shows what companies planned to do with their tax-cut savings.

 

click on graphic to enlarge

 

Now all of the topics in the above graphic put more money in productive private hands than would have occurred if it had been turned over to the government in corporate income tax payments.  Henry Hazlitt, wrote on page 37 from a Chapter entitled Taxes Discourage Production of his magnificent book, Economics In One Lesson, "it (is) improbable the wealth created by government spending will fully compensate for the wealth destroyed by the taxes imposed to pay for that spending."  Professor Friedman complemented Hazlitt's principle when he taught that the government can only put money into the economy that it first takes out. 

 

Companies in the S&P 500 paid more money in dividends through November, $421 billion, than they paid in all of 2017 thereby putting more money in the hands of the owners of these companies including employee defined benefit pension funds, IRAs, & 401(k)s.  This increase in dividends goes hand in hand with the reduction of individual income tax rates under the new tax law to put more money in the hands of working people thereby increasing economic growth.

 

See Part B2 below for conclusion of this post.