Will the Trump Corporate Tax Cuts have Trickle Down Effect

Powerful and diversified economies such as the United States, bear the understanding that owners of economic capital have greater capacity for driving economic expansion at a microeconomic as well as macroeconomic scale and not the government. It is on this basis that the Trump administration enacted a radical piece of legislation in comparison to what other nations are adopting as the taxation policy (Michel 2018, 1).

Research question: Whether the unprecedented move will translate to economic benefits to the general American populace since it is fundamentally designed to appeal to corporate entities from whom gains are then expected to trickle downwards to the other smaller economic players.

Hypothesis

1. The Trump corporate tax cuts will result in economic expansion arising from the trickle-down effect.
2. The corporate sector will respond effectively and efficiently investing in business expansion and increasing incomes amongst employees.
3. The null hypothesis is that the projected economic expansion will be much lower than forecasted and will leader to greater economic inequality in the longer term.

Literature Review

This is not the first time the U.S. is actualizing a taxation policy resulting in lower government revenue. The results from the previous intervention differs from the projection that the trickledown effect will actually translate into a positive impact on the economic position of low income earning Americans (Buti 2018, 9). The Ronald Reagan administration took on a similar path at a time when the nation’s economy was suffering a period of recession implying that economic production was low yet demand for was comparatively high (Bargain et al. 2015, 1067). To remedy this, Reagan introduced periodic tax cuts over the course of his presidency that overcame the recession and propped up the society for quick recovery and extended period of growth (Bargain et al. 2015, 1067). Unfortunately, there were a number of far reaching negative effects as a result of the Reagan era tax cuts; great economic disparity (Park 2014, 2087). Income after tax for the fifth income group increased very little in comparison to that of the top fifth representing one percent of the populace increased by a massive percentage (Bargain et al. 2015, 1061). The implication is that the corporate tax cuts translated to significantly broadening the divide between the wealthy and other Americans.

The conditions that motivated the Trump administration to champion for the new tax legislation are not different from those witnessed during the Reagan presidency (Park 2014, 2847). The country has been experiencing slower than expected growth since the 2007-2010 crisis ended. Indeed, unemployment figures remain low but it appears that corporation are quite weary when it comes to investing in expanding operational capacity. Unfortunately, many firms are opting to save profits made while keeping a tight cap on increasing employee wages and other forms of remuneration. Very few notable corporations have opted to offer employees any increments (Michel 2018, 2). The trickle down effects linked to the tax cuts are not likely to translate to real wages any time soon (Buti 2018, 9). This is based on evidence that most corporations have been witnessing considerably high profits over the past few years yet the willingness to improve worker motivation through remuneration appraisals remains weak.

Methodology

The research will be based on the systematic review research methodology. It is a sufficient framework for tackling the stated research question in a decisive manner, it is imperative to identify the right economic indicators to employ in specifically delving into current trends as well as forecasts. These either lag, lead, or occur coincidentally with given economic condition. Data collection will focus on a review of economic performance measurements like personal expenditures and incomes, business inventories, unemployment rates, industry specific gross products, interest rates, and others. Sources such as government, business, trade, and general interest publications as well as data acquired from the U.S. Department of Commerce and the Bureau of Economic Analysis will provide credible information on the subject.

Bibliography

Bargain, Olivier, Mathias Dolls, Herwig Immervoll, Dirk Neumann, Andreas Peichl, Nico Pestel, and Sebastian Siegloch. “Tax policy and income inequality in the United States, 1979–2007.” Economic Inquiry 53, no. 2 (2015): 1061-1085.

Buti, Marco. “Cross-Atlantic implications of the new US policy mix.” Journal of Policy Modeling (2018).

Michel, Adam N. “Tax Reform 2.0: Priorities After the Tax Cuts and Jobs Act of 2017.” World 30, no. 30.2 (2018): 24-9.

Park, Seong-Jin. “How economic inequality has increased by tax cuts? Power-based modular supervisory control of discrete event systems.” IEEE Transactions on Automatic Control 59, no. 10 (2014): 2843-2848.

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