trump Tax Cut proposals reduce taxes for businesses and corporations. They also provide incentives for fresh investment in capacity. To be successful, these proposals must be tempered with a reduction in government expenditure. Trump proposes tax cuts for corporations and individuals. According to CNBC, the taxes for the richest Americans will decline to only 25 percent.

The New York Times reports that the corporate taxes will drop to 20 percent. To spur new investments, Trump has proposed that he will allow depreciation of new plant and machinery in the very first year.

Among the bouquet of Tax Cuts Trump has proposed are those on limited liability companies, doing away with the alternative minimum tax, and reducing estate tax. The intention of the tax cuts is to stimulate economic growth and increase the number and quality of jobs available to the Americans.

Tax proposals have incentives for investment

The proposal for tax cuts is aimed at decreasing the tax burden on businesses and at the same time providing them incentives to invest more in production capacity. Allowing depreciation write-off in the very first year of investment directly spurs businesses to invest more in. To improve economic growth, more private investment in businesses is required. The current proposals do not have tax cuts for salaried employees.

The rationale is that additional wages in the hands of salaried employees will increase consumption but may not directly increase investment. This argument is weak because more income in the hands of salaried employees helps increase aggregate demand.

How can Trump tax proposals help the economy?

The reduction in taxes by the Trump government must be balanced by cuts in government spending.

If the government does not reduce spending, there will be an increase in public debt. With the reduction in taxes, the consumer demand will increase as consumers will demand more goods and services. At the same time, the reduction in taxes for businesses combined with incentives for investing will encourage businesses to invest more.

The intention of the Trump policies is to stimulate capital formation. The tax reduction measures will boost saving and investment that will, in turn, increase the productive capacity of the US economy. Overall, Trump's tax proposals can stimulate the economy, provided government spending is kept in check.
© ALL RIGHTS RESERVED