The Economy and Tax Policies in the Context of President Donald Trump's Inauguration

Tax form used to file individual income tax returns. The photo also features the United States flag

The economy of a country is a crucial factor for measuring a good quality of life, and every year, measures that directly impact the market and people's lives are closely monitored. It is impossible to imagine the enactment of economic measures without also relating them to politics and Congressional decisions. For the USA, tax policies are of great relevance to the economy, from large corporations to individual taxpayers, and with the inauguration of President Donald Trump on January 20, 2025, we can expect actions that will bring changes to this scenario.

Among the changes during the first term of the current president, Donald Trump, we had the TCJA, the Tax Cuts and Jobs Act, which was signed in 2017 and came into effect in 2018. This law altered the tax treatment in the country, such as reducing the corporate tax rate and for individual taxpayers, almost doubling the standard deduction and also the student credit, among other important points within the scope of the TCJA (P.L. 115-97). As a result, even while facing a pandemic during this period, there was an increase in consumer spending, as with the tax change, individuals had more money after tax deductions and thus consumed more in the domestic market, boosting the economy.

Individual taxpayers experienced a significant change. The maximum marginal tax rate is 37% for incomes above $609,350 for single filers, and $731,200 for married couples filing jointly. As for deductions, $29,200 for married couples filing jointly or half that amount for single filers or spouses filing separately. Both low, middle, and high-income earners benefited from the reduction. In alimony, we also noticed changes. After the introduction of the TCJA, it is necessary to make the payment of the income portion sent to the ex as part of the alimony agreement, and in return, the ex collects this tax-free for divorces and agreements from December 31, 2018.

The tax changes in the TCJA for individuals, that is, for citizens, are temporary. The estimate is that the effects of the law will end on December 31, 2025. During the 2024 election campaign, Trump extensively discussed income tax incentives, this time extending to firefighters, police officers, military personnel, and veterans, and also proposed eliminating taxes on tips and overtime pay. Regarding the TCJA, for individual taxpayers, the campaign proposal would be to make the lower top marginal rate permanent, among several other measures.

The 119th American Congress will be very important in the TCJA issue because all tax legislation originates in Congress. The enactment of permanently extending the effects of the TCJA, as is the White House's interest, will have to undergo extensive discussion about all the effects of tax policy, as the effects of a possible enactment would reduce Federal Tax Revenue, and it is necessary to be sure how this can compensate the economy as a whole.

The inauguration of President Donald Trump in 2025 brings with it the expectation of new fiscal policies that can significantly impact the US economy. The changes implemented during his first term, such as the Tax Cuts and Jobs Act (TCJA), have already shown positive effects on increasing consumer spending and reducing tax rates for individuals and corporations. However, the proposals for the new term, including the permanence of tax cuts and new tax incentives, depend on discussions and approvals in Congress. The future of Trump's fiscal policies will be crucial in determining the balance between tax revenue and economic stimulus, directly affecting the lives of individual taxpayers and the market as a whole.

References

Tax Cuts and Jobs Act (TCJA), P.L. 115-97. Available at: https://www.congress.gov/115/plaws/publ97/PLAW-115publ97.pdf