2017 Republican Tax Cuts Are Driving Up the Deficit With Few Long-term Benefits
Some conservative economists supported the 2017 Republican tax cuts on corporations and individuals because they said that they would pay for themselves by stimulating long-term growth in the economy. Republican lawmakers argued that the Tax Cuts and Jobs Act would lead to more business investment and encourage US companies to repatriate foreign business profits.
However, based on research after the Bush tax cuts in 2001, the vast majority of economists believed that Trump's plan would only provide a temporary stimulus while ballooning the debt. Most were also skeptical that companies would bring home foreign profits or make additional long-term investments in America. The most current research suggests they were correct.
A study by William G. Gale, Hilary Gelfond, Aaron Krupkin, Mark J. Mazur, and Eric Toder of The Tax Policy Center of the Brookings Institution found that the 2017 tax cuts will actually make life more difficult for most Americans without substantial long-term economic benefits.
Tax Policy Center: "The new law will reduce federal revenues by significant amounts, even after allowing for the modest impact on economic growth. It will make the distribution of after-tax income more unequal, raise federal debt, and impose burdens on future generations. When it is ultimately financed with spending cuts or other tax increases, as it must be in the long run, TCJA will, under the most plausible scenarios, end up making most households worse off than if TCJA had not been enacted."
More recent research suggests the investment argument was equally spurious. After a temporary increase right after the tax bill was passed, business investment has returned to normal levels.
Bloomberg Businessweek: "Business investment did jump in the first quarter of 2018, presumably in response to the tax cuts, but then quickly sagged toward its normal range. For it to raise the economy’s growth rate over a longer term, it would have to climb to a much higher level and stay there, according to a recent report from Barclays Plc."
Like business investment, profit repatriation saw a quick bounce after the legislation was passed, but has leveled off since.
Bloomberg Businessweek: "The tax law removed the disincentive in the tax code for U.S. companies to bring home their foreign profits. Trump predicted a $4 trillion windfall. Data compiled by the U.S. Bureau of Economic Analysis show that $295 billion was repatriated in the first quarter of 2018. That dropped to $170 billion in the second quarter and is on track to fall below $100 billion in the third quarter, not far above the $40 billion post-crisis quarterly average, Morgan Stanley economists estimated in early December."
Most economists now believe that the tax cut's stimulative effect on the economy is about over, but that we will be stuck with growing debt for years to come. That is not at all what President Trump and Congressional Republicans promised.
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