Washington, DC – March 04: US Vice President JD Vance and Mike Johnson House speaker (R -La) … more
During his campaign, President Trump promised to create A “beautiful golden age of business” by reducing inflation, reducing taxes and a reduction in government spending. The bill to reconcile the budget it works through Congress could help Trump achieve this goal, but the current version is lagging behind. Some additional reforms in Medicaid and the deduction of the State and Local Tax (SALT) in combination with the changes in the way businesses deducted from investment expenses would improve the bill and the economy.
The tax institution estimates that today’s tax account will boost GDP by 0.6%, but will cause wages reduction by 0.1%. This is almost not the tax reform of Trump pre-development. The tax institution estimates that the permanent difference of the 2017 tax cuts and jobs law (TCJA), therefore, extending Trump’s tax cuts from its first term, will increase GDP by 1.1% and wages by 0.5%, adding 847,000 jobs.
One of the differences between the two tax plans is the way they deal with business investment expenditure. Tcja allowed businesses in exit The full cost of short -term investment, such as the tools and equipment of the year purchased from 2018 to 2021. After 2021, the amount that businesses could be reduced annually and fully set up in 2027, returning to old depreciation programs. Today’s bill brings back the full expenditure, but only until 2029. Making a permanent expense will eliminate the tax penalty imposed on intensive capital, such as manufacturers, and encourage more investments. This ultimately enhances productivity, wages and economic growth.
The tax foundation estimates that permanent full spending will increase GDP by 0.5%which will close the growth gap between the current tax account and the permanent expansion of TCJA. If Republicans really want to increase US production and boost middle class wages, they should encourage businesses to invest in new tools, equipment and technologies. Permanent complete expense does this.
Trump and Republicans also want to reduce the government deficit and make full spending permeable without doing anything else will reduce tax revenue and increase the deficit. Fortunately, there are good ways to offset this loss of revenue that does not discourage productive investment. One is to maintain the current salt deduction ceiling.
TCJA has set a maximum of $ 10,000 for the amount of state and local tax taxes could deduct from their income prior to taxation. The new account increases the lid in $ 30,000 Along with some other changes, which will reduce revenue by $ 356 billion for ten years. Research shows that households in California and New York will benefit more than the upper limit and the benefits are even more concentrated than. In accordance with Tax Policy CenterBefore the TCJA lid, only eight counties across the country, largely around San Francisco and New York, had an average removal of salt of $ 30,000 or more.
The highest salt lid will benefit a small number of high-income households, while making it more difficult to implement real pre-development reforms such as permanent complete expenditure. Negotiation of a lower salt cover for permanent expense is a smart choice.
Another way to improve the current account and reduce the deficit is Medicaid reform. The law on affordable care, also known as Obamacare, extension of Medicaid’s eligibility to adults working with the possibility of employees. In order to encourage states to accept this expansion, it set the percentage of Federal Medicine (FMAP) for this new population to 90% instead of the average of 57% used for the traditional Medicaid population, e.g. Disabled people, pregnant women, children and the elderly of low income.
In dollar terms, this means that for every $ 1 a state spends on the traditional population, receives about $ 1.33 from the federal government, while for the expansion population, largely capable adults, it receives $ 9 for every $ 1 spending. This gives states incentive to register more capable people in Medicaid, which increases demand for services and causes more waiting times For really poor people who need care. And since states take such a large FMAP for the expansion population, they do not strictly impose eligibility rules. A study estimates The federal government pays $ 37 billion a year for non -eligible Medicaid registered.
To address these problems, the Congress Must diminish Paying FMAP expansion at the same level as the traditional population. If this is very difficult politically, it could reduce the 50% FMAP floor maintained by FMAP for some rich states such as New Jersey, Massachusetts and California Artificially High. These savings could be used to offset other tax reforms or reduce the deficit.
The reconciliation process is difficult, requiring compromises and agreements. Congress is moving in the right direction, but defects in the current bill will reduce its impact on economic growth. Maintaining the $ 10,000 salt ceiling, the reform of Medicaid FMAP payments and the incurred costs would improve the reconciliation bill and increase the possibility that Trump achieves his financial goals.
