1 January 2018
How Trump’s Tax Plan Affects The Economy
Just over a week ago, President Trump signed off on a new tax plan for the nation. The two main impacts of the bill are that the income tax on the average consumer will fall and standard deduction will double. Though the income tax will be falling and inevitably enhance consumer confidence, the doubling of standard deduction will negatively impact other markets such as the real estate industry. So does the new tax plan negatively affect the market or will it help improve it? There are clearly both benefits and drawbacks to this new plan, so let’s review them more closely.
The first of the two main impacts is the cut on the income tax rates. Every employed working class american contributes to the income tax. It is probably one of the most bitter taxes that americans pay considering it takes away from our well earned money, so many of America’s consumers will be quite excited to see that they will acquire a bit more revenue due to the bill. This is not only good for the individual consumers, but also for the market as a whole. In an article about consumer confidence during holiday shopping, Mark Tepper wrote, “So far, holiday spending has been strong, which bodes well for the strength of the consumer. In November alone, retail sales were up 5.8 percent year over year, and Mastercard is projecting that we'll see the strongest holiday season sales growth since 2010, which should surpass 5 percent year-over-year growth”(Tepper). This shows that the lowered income tax instilled on consumers will give them more of an incentive to buy and bring more money into certain markets. This is a prime example of how the tax bill will benefit the overall economy.
Though the income tax will be falling and inevitably enhance consumer confidence, the doubling of standard deduction will negatively impact other markets such as the real estate industry. Most everyone has budget no matter how high or low for annual necessities and expenses. When the price goes up for something then the opportunity cost of purchasing it is that you have less money to spend on something else that you may need. What this does is hurts the market of that other potential product that you could have bought because it takes revenue away. The doubling of standard deduction does just this. In an article about the effects of the new plan, Kimberly Amadeo wrote, “The National Association of Home Builders and the National Association of Realtors opposed this. As more taxpayers take a standard deduction, fewer would take advantage of the mortgage interest deduction”(Amadeo). This shows a negative impact because the doubling of the standard deduction will cause consumers to not take advantage of other deductions in markets such as real estate. The doubling of deduction is a negative externality to the real-estate market.
Overall the plan is supposed to benefit our overall economy, but you can’t make progress without drawbacks. The plan will benefit your average consumer because it will give the consumers more incentive to buy due to the income tax cuts. On the other hand there will also be a drawback to the increase in deductions. So even though it is going to benefit the average consumer, it negatively affects certain industries.
Amadeo, Kimberly. “What to Do Now to Prepare for Tax Changes”. The Balance. Web. 1 Jan. 2017. https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968
Tepper, Mark. “The consumer has never been stronger, and this could just be the beginning”.CNBC.Web1 Jan. 2017. https://www.cnbc.com/2017/12/21/the-consumer-has-never-been-stronger-and-this-could-just-be-the-beginning.html