The Finance 202: Trump speech will bash rigged system. But tax outline would benefit 1 percent.

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Taxes have been a central economic issue of American policy for as long as the government has existed, and the laws are underway to be changed. Trump has talked about simplifying tax rates, and lowering tax for the middle class and for corporations; meanwhile, Republicans in Congress are looking to ease taxes for the wealthy.

This issue focuses primarily on how much more the "top 1 percent" (and wealthy Americans and corporations in general) should be taxed. The right wing belief in tax cuts resides in the theory of trickle down or supply side economics (trickle down explanation), where increased wealth in the hands of wealthy investors and executives "trickles down" to the middle class through higher wages, lowered prices, and economic growth. Lowered taxes may also increase government revenue, easing the national deficit, as explained using the Laffer curve (Laffer curve explanation). However, even if lowered government revenue does result in an increased deficit, Trump has claimed that the economic growth stimulated by the cuts will compensate and balance out the federal income, which is valid. By planning to lower taxes, Trump and the Republicans are aiming to stimulate the country's economy, which (if the theory is correct) benefits everyone, not just the wealthy. There are past examples of tax cuts achieving this goal, as seen in the 1980's Reagan tax cuts and the 2000's Bush tax cuts, both leading to increased GDP and pulling America out of recession. Will the currently planned cuts do the same?

On the other hand, many Democrats in Congress oppose tax cuts, citing the negative effects they have had on lower class Americans and federal deficit. A major problem is the rising income inequality of Americans (keep in mind that "poor" is relative; inequality can grow even as lower class income grows), and the lack of services that the country's poorest can afford. Taxation comes as a solution, with income redistribution to support those in need of money. Democrats in Congress have insisted that potential tax cuts be proportional to all Americans, not just the wealthy. This would keep public policy fair, and does not stimulate the inequality problem. Additionally, Democrats are wary of the increased federal deficit due to a drop in revenue, which, as mentioned above, Trump does not believe will be a big problem.

Lastly, I wanted to add in a few statistics that may change the way we view tax cuts and income classes in general. Generally, we think of the "top 1 percent" of Americans in a static way; those who are rich stay rich. However, a Panel Study on Income Dynamics (link to study statistics) has revealed a more fluid depiction of income classes. For example, "11.1% of the population will have found themselves in the much-maligned 1% of earners for at least one year of their lives" and "70% of the population will have experienced at least one year within the top 20th percentile of income." Perhaps tax cuts to the wealthy more directly benefits more Americans than many people perceive, and perhaps this will change the way we look at tax policy in the near future. In any case, I strongly suggest looking at the study and thinking about it for yourself.

What are your thoughts on the upcoming tax cuts and how they will affect American people and the nation's economy? Is income inequality as bad as it is portrayed to be? And is short term welfare relief or long term economic growth more beneficial?