During Wednesday's Vice Presidential Debate, Senator Kamala Harris and Vice President Mike Pence discussed who was benefiting from the Trump administration's tax reforms: middle-class families or rich.
Shortly after taking office, President Trump signed the Tax Cuts and Employment Act, which lowered the corporate tax rate from 35% to 21%, changed income levels for each tax bracket, and lowered the highest tax bracket from 39.6% to 37%.
The winners of Trump's tax law
Harris said Donald Trump's tax bill benefited "the top 1% and the largest companies," while Pence said the average American family of four saved $ 2,000 in taxes because of the new bill.
According to the White House Economic Adviser Council, a typical family of four earning $ 73,000 received a tax break of $ 2,000 in 2018.
According to Eleanor Wilking, an assistant professor of law at Cornell University, tax law did not solely benefit those in the top 1% as it lowered personal income rates for every tax bracket except the 10% bracket. She pointed out that it would benefit high-income taxpayers disproportionately.
Wilking noted that several studies showed that the bottom 20% of the income distribution saw after-tax income increase by 0.3-0.5%, while taxes on the top 20% of the income distribution increased 2.8% to 3, 1% were reduced.
According to the Tax Policy Center, the top 20% of the labor force saw after-tax income increase 2.9% while the bottom 20% saw a 0.4% increase.
According to Charlotte Crane, a law professor at Northwestern University, the tax plan has helped higher-class taxpayers more than lower-class taxpayers, in part due to the 199A or pass-through withholding.
The deduction allowed taxpayers with pass-through business income (such as partnerships and sole proprietorships not subject to corporation tax) to exclude up to 20% of pass-through business income from federal income tax under the Foundation.
According to the Joint Tax Committee, 61% of the withholding will go to the richest 1% of households in 2024.
How have the tax cuts helped the economy?
Pence paid tribute to Trump for America's economic growth prior to the COVID-19 crisis, claiming Trump could turn the economy around by cutting taxes and rolling back regulations.
The unemployment rate hit a record low at one point during Trump's tenure, hitting 3.5% in late 2019 – a 50-year low.
However, according to Alan Blinder, a member of President Clinton's Council of Economic Advisors and a Princeton economics professor, what happened before you became president will affect the economy more heavily. When Trump inherited the economy, the unemployment rate was already falling.
Wilking said most economists would agree that the tax bill "has a short-term stimulant effect," albeit far more modestly than proponents of the bill originally claimed. Trump claimed, for example, that wages would go up after lowering business tax rates.
"While wages rose in 2018, they weren't very strong," said Wilking.
Proponents of the tax law also said it would spur business investment. Wilking said, however, that corporate investment has remained stable "as companies have been buying back shares rather than starting new projects." In 2018, companies spent $ 200 billion more on share buybacks than on research and development.
And while Trump said the economy would grow between 4% and 4.5% after his tax cuts, it grew 2.9% almost two years after the bill was signed.
Wilking said Trump's tax bill ultimately contributed to a surge in the country's deficit, which rose to $ 984 billion in 2019.
"At some point the bill could come due, and it is likely that taxes will have to be collected in order for low- and middle-income taxpayers to fund it," Wilking said.
Biden's tax plans
During the debate, Pence said Biden planned to lift Trump's tax cuts and eventually raise taxes "for every American."
Biden has said he will not levy taxes on Americans who earn less than $ 400,000.
The non-partisan Penn Wharton budget model analyzed the measures proposed by Biden and found that nearly 80% of the increases under the Biden tax plan would fall on the top 1% of the income distribution.
Overall, PWBM said Biden's platform would generate $ 3.375 trillion in additional tax revenue and increase spending by $ 5.37 trillion.
Some of Biden's other major tax proposals include raising the corporate tax rate from 21% to 28%, restoring the top tax rate for individuals from 37% to 39.6%, and imposing new sanctions on tax havens.
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