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Tax policy plays a role in shaping the economy. Scholars have long asserted that tax policy should be used to make positive impacts on economic activity by adjusting and creating policies that benefit most of the population rather than the elite few. Scholars advocate for implementing policies to address wealth and income inequality while effectively facilitating other goals such as revenue raising and combating wealth concentration.
Scholars and economists found that a key factor in wealth inequality is the increasing capital income concentration of the top income earners. Economists have further found that income and wealth inequality undermined democracy and the economy. Scholars assert tax policy has been historically used to further the financial goals of the very wealthy and contributes to income and wealth inequality. Proponents of lower tax responsibility contend tax reform is necessary to simplify the tax code, stimulate the economy, and provide economic efficiency.
Politicizing tax policy contributes to the polarizing effects as politicians use their platforms to incite or satisfy their constituents. Political affiliations influence beliefs and myths about tax policy, with taxpayers often supporting proposed policies consistent with their political ideologies. In his first presidential campaign, one of Donald Trump’s platforms was “Tax Reform that Will Make America Great Again.” He indicated his tax reform would provide tax cuts for everyone, particularly the middle class. On December 22, 2017, President Trump signed legislation, commonly referred to as the Tax Cuts and Jobs Act (TCJA), claiming it as “the largest tax cuts in history.” While proponents of the TCJA claimed this legislation provided tax breaks for everyone, the prediction by most tax policy experts was that the provisions would predominantly benefit the wealthy.
This Article asserts tax policy should reflect the values of society and benefit taxpayers who need assistance. The tax base should be modeled on historical justifications for determining tax responsibility, meaning, primarily imposed on the wealthiest taxpayers. In short, tax policy should revert to its roots when tax rates structures were both marginally and effectively progressive. By shifting tax responsibility to the wealthiest taxpayers, we can provide tax relief to middle-and low-income taxpayers.
This Article will examine how tax law, particularly the TCJA, continues historical trends to bait taxpayers with proposed tax reform described as benefiting middle-and low-income households but that instead disproportionably benefits the wealthy. Additionally, this Article will address tax policies in the TCJA that exacerbate wealth and income inequality by focusing on two aspects of the TCJA: the transfer tax laws and the mortgage interest deduction (MID).