Reassessing the Tax Cuts and Jobs Act

What were the economic consequences of the TCJA?

When the TCJA was enacted, proponents argued that the law would help stimulate the economy by lowering taxes on business income and providing incentives to invest. A few advocates even suggested that the economic response would be more than enough to cover the estimated $1.9 trillion 10-year fiscal cost of the law.

While the COVID-19 pandemic and recession complicated efforts to examine the TCJA’s impact, economic data suggests the more optimistic scenarios promoted by the law’s supporters did not pan out for either the US economy or its revenue collections.

A TPC paper examining pre-pandemic data (i.e., through 2019) found the TJCA had little impact on business investment. While overall investment growth increased after 2017, much of that increase was concentrated in oil and related industries—and thus appeared to be a response to oil price increases and not lower tax rates. Investment only grew modestly in other sectors and petered out by the end of 2019.

As for economic growth paying for the tax cut, in late 2019 the Congressional Budget Office estimated the TCJA would add $1.9 trillion to deficits from 2018 to 2028, even after accounting for the law’s economic benefits.

TPC publications in recent years have examined the TCJA and the relationship between taxes and the economy more broadly.

Additional Reading:

The Tax Cuts and Jobs Act: Searching for Supply-side Effects (July 2021)

Rethinking the Incidence of the Corporate Income Tax (May 2022)

Effects of 2017 US Federal Tax Overhaul on the Energy Sector (May 2022)