By Judy Gordon, DPSC Secretary
Republicans promised the 2017 Tax Cut and Jobs Act (TCJA) would pay for itself by stimulating economic growth. They argued that federal tax revenues would rise because of higher wages, increased investment, and higher corporate profits. These higher tax revenues would offset the act’s tax cuts.
Were the tax cuts “rocket fuel” for the economy as Trump promised? Not even close.
A joint study by the Center for Popular Democracy and the Economic Policy Institute found that two years after enactment of the TCJA, “. . . President Trump’s tax bill did not increase wages for working people, failed to spur business investments, decreased corporate tax revenues, and boosted stock buybacks in its wake.”
While wage growth accelerated in 2018, it was driven by economic factors other than the tax cuts. Wage growth subsequently leveled off and then decelerated in 2019.
Investment increased in 2018, but, again, for reasons not attributable to the tax cuts. Investment declined the following year.
Rather than the tax cuts paying for themselves, 2019 saw the lowest corporate tax revenues as a percentage of GDP in the past 50 years excluding periods of recession.
The act also encouraged companies to repatriate funds previously held overseas. But rather than putting these funds toward wages and investment, companies indulged in massive stock buybacks, further enriching corporate executives and shareholders at the expense of increased wages and benefits for workers.
Republicans and, unfortunately, some Democrats now object to raising the corporate tax rate to fund President Biden’s proposed infrastructure plan. Given the failure of the Trump tax cut to improve the economy, this objection underscores the obvious: the tax reductions were nothing more than a massive gift to the rich, not a method for boosting the economy or helping working people.