When Donald Trump came into office, he did so in an election that also gave Republicans a four-seat edge in the Senate and a whopping 47-seat advantage in the House. For two years, Republicans had nearly free rein to do whatever they wanted, and what they wanted was a massive tax cut for wealthy Americans and corporations.
Former Speaker of the House Paul Ryan sold the package as a “middle-class tax cut,” but the truth was the bill got rid of medical deductions used by millions of lower-income Americans to make room for massive corporate tax breaks. Ryan and other Republicans predicted that the tax cut would more than pay for itself, generating $1 trillion in economic growth. Trump called it “rocket fuel” for the economy.
The so-called “Tax Cuts and Jobs Act” passed with only Republican votes in the House and Senate, and almost from the beginning, it was clear that the bill was not what they had claimed. More than 60% of the savings went to people at the top of the income ladder. Revenues fell even more than the Congressional Budget Office had predicted before the law passed. Republicans behind the bill were forced to admit that it might never pay off, and Ryan was left bragging about a school secretary who was “pleasantly surprised” by a $1.50 weekly raise.
And now, after six years, the National Bureau of Economic Research has completed the most detailed, in-depth analysis of the results of the Trump tax cut. And what the nonprofit found was what seemed obvious before the bill was passed: It may have stimulated some corporate growth, but it ballooned the debt while producing a fraction of predicted benefits.
Former Treasury Secretary Steven Mnuchin was one of those who predicted that the tax plan would pay for itself. When the tax cut came up for a vote in 2017, Mnuchin repeatedly promised to provide an analysis explaining how lopping billions from national revenue would ultimately pay for itself. However, as The New York Times reported, analysts at the Treasury’s Office of Tax Policy had been “largely shut out of the process” and were not working on a detailed analysis.
Instead, Republicans leaned on a letter from nine conservative economists, which was published in The Wall Street Journal. That letter cited extremely hopeful predictions based on what it said “many economists believe.” These included a simplistic lower-taxes-equals-more-growth-equals-everybody-wins string of predictions that would have made Ronald Reagan proud. It focused on the idea that, by encouraging companies to invest more in the United States and do less business overseas, the tax cut would be revenue neutral. That is, the tax cut would generate as much new revenue through investment growth as it lost through the decreasing tax rate. Because conservative economic theory said so.
But Republicans did more than just promise that a massive tax cut for corporations would come without any cost to the government. They said that the average American would see a big bump in pay.
As The New York Times reported in November of 2017, Ryan pitched the corporate tax cut not as something that would help big business and billionaires, but as “really all about helping families and workers.” Trump’s Council of Economic Advisers predicted the cut would translate into a $4,000 to $9,000 raise for the average American household within three to five years.
A revenue-neutral tax cut. A $4,000 to $9,000 raise for average Americans. It seemed like the ultimate win-win. And even if the rosy predictions of Republicans were slightly off, it didn’t seem like such a bad deal.
Now it’s possible to check in on all those predictions and discover what we really got. Far from being revenue neutral, corporate tax revenue dropped by $100 to $150 billion per year, the NBER’s new analysis found. And when it came to the amount trickling down to workers, the result was more like an average of $750 per worker per year in the long run.
As Republicans had predicted, cutting the top corporate tax rate by 14 percentage points and giving companies additional options on deductions generated an improvement in corporate revenue. And Republicans were right that this extra cash would lead to additional domestic investment. It did. As the report’s conclusion notes, the total effect on corporate cash was pretty much equal to the extra money that they were handed. There were no magic multipliers or huge stimulative effects that turned this money into something many times greater.
The biggest stimulative effect to the economy came from a rule change allowing corporations to immediately deduct investments. Of everything in the tax cut, that was the one factor that appeared most effective.
However, the combination of reduced tax rates and changes in rules that allowed corporations greater flexibility in deducting expenses meant an incredible 41% decline in corporate tax collections.
Overall, there was an increase in investment, but it didn’t come close to generating the kind of big payday for the average American that Republicans had predicted. On top of that, corporate tax revenues fell drastically, adding dramatically to the national debt. But corporations did end up with a lot more revenue—so that part of the prediction, which was probably the only part Republicans really cared about—was true.
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