President Donald Trump signed H.R. 1, also known as the Tax Cuts and Jobs Act, into law shortly after the U.S. House of Representatives and Senate approved the final version of the bill in December 2017.
The new law, signed by Trump on December 22, reduces most individual income tax rates, permanently cuts the corporate income tax from 35 percent to 21 percent, ends the unorthodox practice of taxing American businesses’ profits earned in other countries, and cuts taxes by an estimated $1.5 trillion.
The individual income tax reductions will expire on December 31, 2025, unless future legislation extends the changes or makes them permanent.
Foresees Widespread Benefits
Gary Wolfram, a professor of economics at Hillsdale College and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says the tax relief will benefit business owners, consumers, and workers alike.
“When we reduce the income tax, there’s going to be more production, greater demand for labor, and lower prices, because there’s going to be more output,” Wolfram said. “Corporate taxes impact the owners of the corporations, the stockholders, including people’s pension funds; the consumers, who pay for the corporate tax in the form of prices; and the laborers, who pay part of the corporate tax in the form of their [lowered] wages.”
Better International Competitiveness
Grover Norquist, president of Americans for Tax Reform, says the new law finally makes the nation’s corporate tax structure globally competitive.
“We’re no longer at a disadvantage in international competition,” Norquist said. “We now compete well against all the countries, with our 21 percent rate,” Norquist said. “China is at 25 percent, and the European average is in the low 20s. We had the highest rate.”
American businesses will bring home money earned by overseas subsidiaries, Norquist says, sparking capital investment.
“One or two trillion dollars of American earnings will come back from overseas because it can come back without penalty now,” Norquist said. “We will see a great deal of money flow from overseas back into the United States for investment because, compared to last year and five years ago, it is now less expensive to buy a factory and equipment in the United States.”
The surge of new economic activity will benefit low-income individuals, Wolfram says. “Prices are going to be lower and demand for their labor is going to be higher, so their wages are going to be higher,” Wolfram said.
Calls for Permanence
The fight to unleash prosperity through tax reform isn’t over, Norquist says.
“The next steps in tax reform relate to the fact that a number of the tax cuts are temporary,” Norquist said. “The next steps are taking all of the tax cuts that are temporary and doing one of two things: extend them out for another 10 years or make them permanent. We’ll see them become permanent over time.”