A landmark report by economists from Harvard, Princeton, Chicago, and the US Treasury has shed new light on the effects of the 2017 Trump corporate tax cuts.
This comprehensive analysis reveals a significant increase in business investment and economic growth, with minimal impact on government revenues.
The Tax Cuts and Jobs Act of 2017, a pivotal piece of legislation during the Trump administration, permanently reduced the corporate tax rate from 35% to 21%. This major shift aimed to stimulate the American economy by making it more conducive for businesses to invest and grow. The new law also facilitated immediate expensing of capital investments, a change from the previous requirement of writing them off over five years.
Authored by a team of esteemed economists, the 51-page report presents a detailed analysis of the tax cuts' impact. It shows a marked 20% increase in business investment following the implementation of the tax reforms. This finding is based on an extensive examination of 12,000 corporate tax returns from before and after the enactment of the Tax Cuts and Jobs Act.
The growth in business investment is a clear indication that the tax cuts achieved their intended purpose. Former Obama economic advisor Jason Furman concurred with this assessment, acknowledging the stimulus effect of the tax reforms on business investment.
The report further found that the tax cuts had minimal impact on government revenues over a decade. This outcome was attributed to the dynamic effect of increased revenues from economic growth, which largely offset the reductions from the lower corporate tax rates. In the years following the tax cuts, federal revenue saw a significant rise from $3.3 trillion in 2017 to over $4 trillion annually.
Contributing to this phenomenon was the strong economic growth rate of 4.9% in the third quarter of 2022. This growth further solidifies the role of the tax cuts in bolstering the overall economy, Western Journal reported.
The Wall Street Journal's James Freeman highlighted the broader implications of these findings in a powerful statement, "The results of the Trump corporate tax reform were more business investment, more growth, more wages for workers—and little impact on government revenue as lower corporate tax rates were offset by an expanding economy. Game, set, match."
The economists' report takes a deep dive into the long-term effects of the tax cuts, utilizing a comprehensive model to assess their impact. It suggests that the dynamic labor and corporate tax revenue feedback in the first 10 years is less than 2% of baseline corporate revenue.
This is primarily due to investment growth, which leads to higher labor tax revenues from wage growth and an offset in corporate revenue declines due to more depreciation deductions.
Jason Furman, in his analysis, emphasized the direct correlation between the tax cuts and subsequent business investments. He noted that companies benefiting from larger reductions in tax rates under the Tax Cuts and Jobs Act (TCJA) showed correspondingly larger increases in investments in the following years.
The report's conclusions are a testament to the effectiveness of the 2017 tax cuts in stimulating business investment and economic growth while maintaining government revenue levels.
These findings provide valuable insights into the role of tax policy in shaping economic outcomes and offer a nuanced understanding of the tax reform's impact.
