BUS 626 W3D1

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Ashford University *

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626

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Economics

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Jan 9, 2024

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1

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Fiscal policy refers to the government's use of taxation or other policies to achieve the country's macroeconomic goals (Gwartney et al, 2022, pg 176). An example of a fiscal policy has been the Tax Cuts and Jobs Act of 2017. This policy made several large changes across the tax code including: reducing the corporate tax rate, increasing the standard deduction, and increasing applicable exclusion amounts for estate taxes. It also reduced the overall tax rates as the first seven brackets went from 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% to 10%, 12%, 22%, 24%, 32%, 35%, and 37% (Cornell Law, 2022). This supports the supply-side economists beliefs that a lower tax rate will increase the incentive for people to work, start new business, and contribute meaningfully to their economy thereby increasing the aggregate supply (Gwartney et al, 2022, pg 238). The pros for businesses were reduced costs and expansion for write offs. Meanwhile, one of the cons has been an increase in the government deficit; making changes to the tax code results in a loss of $1.5 trillion over the following decade. Some believed that cutting corporate tax would offset the lost revenue by spurring economic activity while others worried that the lost revenue from the tax cut may signal future lack of confidence in the currency due to increased debt (Welker, n.d.) The effects of the Tax Cuts and Jobs Act of 2017 have come with mixed results. There was little impact on business investment up through 2019 and entrepreneurial growth of new businesses did not increase. It significantly reduced federal revenue and the hypothesis that it would spur economic growth that tax revenues would increase (known as the Laffer Curve) did not come to fruition. However, many advocate that supply side effects will take time to become fully realized (Gale and Haldeman, 2021). References Cornell Law School. (n.d.). Tax Cuts and Jobs Act of 2017 (TCJA) . LII / Legal Information Institute. Retrieved November 11, 2023, from https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_(tcja)#: ~:text=For%20individual%20tax%20deductions%2C%20the Gale, W., & Haldeman, C. (2021, July 6). Searching for supply-side effects of the Tax Cuts and Jobs Act . Brookings. https://www.brookings.edu/articles/searching-for-supply-side-effects-of- the-tax-cuts-and-jobs-act/Links to an external site. Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2022). Macroeconomics: Private and public choice (17th ed.). Cengage Learning. Welker, B. (2018, February 8). Understanding the Pros and Cons of the New Tax Law . Inc.com; Inc. https://www.inc.com/young-entrepreneur- council/tax-reform-small-businesses-good-bad.html
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