The tax reform bill passed by Congress Wednesday (Dec. 20) and expected to be signed into law by President Donald Trump doesn’t eliminate enough loopholes to simplify the system, but it does increase the U.S. budget deficit to “troubling” proportions, according to one West Virginia University economic expert.
“The recent tax reform legislation is broad and has the potential to generate many effects over time. The reduction in the corporate income tax rate and the move to a territorial corporate income tax system will likely boost capital investment in the U.S. – but the question of “How much investment?” is uncertain. The legislation does relatively little to simplify the system or to eliminate various tax exemptions, deductions, and credits – “tax loopholes” – that often create inefficiencies in the system. The legislation has distributional implications, as is true with any tax policy change. The likelihood that the legislation raises the budget deficit over the long-run is troubling, especially since the national debt is currently around 70 percent of GDP – well above its post-World War II average.”
Contact: 304.293.7876; John.Deskins@mail.wvu.edu
"In the short term, the combination of lower rates, the partially-refundable child care credit, and a higher standard deduction will provide modest tax relief to many working West Virginian families. I worry, however, that the prospect of immediate cash in hand will blind many to the long-term costs of this legislation. These individual tax cuts expire in a few years, at which time many families will see their tax burden return to (or even exceed) this year’s levels. It remains to be seen what the impact of the repeal of the penalty associated with the individual mandate under the Affordable Care Act will be, but many anticipate that it will increase the cost and decrease the availability of health insurance which may effectively negate any the benefit of a family’s tax relief. Meanwhile, the corporate and international tax cuts are permanent – and expensive. Despite protestations to the contrary, most economists believe that this bill will not pay for itself and that any GDP growth may be offset by the interest costs on federal borrowing to finance the cuts. The costs of this bill and the deficit spending it will produce may have a fundamentally detrimental economic impact over the long term; it remains to be seen the impact these anticipated deficits will have on interest rates, inflation, and the availability of capital."
Contact information: 304.293.7802; firstname.lastname@example.org
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