U.S. tax bill could boost investment, but may not help middle class

BY APD NEWSDec 06,2017 at 16:19

U.S. President Donald Trump's tax overhaul is close to becoming law, but critics say that while it may increase investment, the legislation may not help the middle class.

The weekend saw the Senate pass the most sweeping tax overhaul since Ronald Reagan's presidency in the 1980s, and one that experts say will impact nearly every part of the world's largest economy, affecting both large and small businesses as well as households.

The House of Representatives voted on Monday night to go to a conference committee to reconcile the key differences between the tax bill passed a day earlier in the Senate and the house version hammered out last month.

Congressional Republicans expressed the hope that the final version will be available on Trump's desk before Christmas, ready for the president to sign it into law.

Not really benefiting middle class

Critics are blasting the tax bill as one in which the biggest benefits will go to the wealthiest individuals and corporations, with average income earners seeing their taxes lowered at first but increasing over the next few years.

"The tax bill is tilted heavily toward wealthy individuals and corporations, so it is not likely to help the middle class that much," Darrell West, a senior fellow at the Washington-based think tank Brookings Institution, told Xinhua. "People of average means will get a small tax cut in the next few years, but then their taxes will go up."

"It will be hard to boost the overall economy if wages continue to stagnate," West said, referring to wages of many Americans and in various sectors that have not gone up over more than a decade. "A tax cut aimed at the middle class would be more likely to create jobs and improve the economy," he said.

West noted that the corporate tax cut could boost investment, but many business leaders plan to use their newfound money to increase dividends for stockholders.

"If that turns out to be the case, the tax cut will not have the investment impact that is desired," he said.

West also believed the tax bill could widen the exacerbating income gap the United States has been witnessing in recent decades, saying it will lead to rising interest rates and have a "deleterious impact" on the economy in the long run.

Dan Mahaffee, senior vice president and director of policy at the Center for the Study of the Presidency & Congress, another non-profit in Washington, also cast doubt on the tax overhaul's effect on future economic growth, as the economy is already in good health and a lot of the tax relief goes to corporations and wealthy individuals.

"The current structure of this tax bill harms some investments -- especially those needed in infrastructure and education -- while relying on corporations to invest," Mahaffee said.

The scholar believed there could have been an opportunity earlier in the first year of Trump's presidency to create a bipartisan reform that would look at the long-term health of the U.S. economy and fiscal responsibility.

Yet that opportunity was lost and partisanship resulted in a hastily written tax plan merely pursuing a major Republican Party accomplishment before 2018.

Indeed, despite the fact that the stock market and large companies have been doing well, there remain long-term economic problems. While jobs are plentiful and wages are high in major cities like New York and Washington, D.C., unemployment rates are high across many of the rural areas.

Additional burden to deficit

Other experts, are positive on growth, investment and wages, but have expressed concerns that the bill will add additional burden to the nation's deficit.

"I think the business-side reforms are pro-growth and should boost investment and wages. However, the addition to the deficit is concerning and may dampen some of the positive economic impacts expected from the bill," said Aparna Mathur, resident scholar at the American Enterprise Institute think tank.

The tax bill comes at a time when the United States has one of the world's highest corporate tax rates. Statistics from the Organisation for Economic Co-operation and Development (OECD), a group of advanced economies, show that the top corporate tax rate in the United States, a combination of federal, state and local taxes, is at 39 percent this year -- well above other OECD members.

Trump, the billionaire-turned-president, would like to lower the rate to 15 percent, according to an August 7 report by the National Public Radio. In addition to further harnessing economic growth, the president has on various occasions boasted his plan to give incentives for U.S. corporations to return home, executing the "Buy American, Hire American" agenda that, among other policy initiatives, illustrates his protectionist stance.

As the latest tax reform, just like Trump's other policies such as renegotiating a series of regional and global trade pacts, is expected to deal another blow to globalization and possibly continue upsetting even Washington's traditional allies, experts have said the prospect of a domestic job increase also remains unclear.

(ASIA PACIFIC DAILY)

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