The House recently passed a plan to cut top corporate tax rates from 35% to 20%.

ID: 1123244 • Letter: T

Question

The House recently passed a plan to cut top corporate tax rates from 35%

to 20%. In order to partially pay for the tax cuts, congressmen are

proposing to get rid of tax deductions for mortgage and student loan

interest, charitable giving, and deductions for taxes already paid to

state and local governments. Proponents argue that this will

encourage long-run economic growth. Use the models and arguments we have

discussed throughout the course to either support or critique these claims

and determine the likely impact in the short-run and the long-run from the

tax cuts.

(Please focus on the economics of the tax cut).

Monthly mortgage payment

P = L[c(1 + c)n]/[(1 + c)n - 1]

L is the loan amount = 80% of $ 350,000 = $ 280,000

c is monthly rate of interest = 3.6%/12 = 0.0030

n is number of periods = 20*12 = 240

So Monthly amount = 280000(.003*(1+.003)^240)/((1+.003)^240-1)

= $ 1638.31

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