In late 2017, with much fanfare, the Republicans in Congress passed a comprehensive tax overhaul. The Tax Cuts and Jobs Act was rushed through Congress with no hearings and without Democratic support. The bill remains the Republicans’ crowning legislative achievement during the two years in which they held all of the levers of power. At the time, this tax bill was heralded as a way to simplify and lower taxes for the middle class, while boosting the economy so much that the tax cuts would pay for themselves.
Now that the tax bill has been in effect for more than a year and a half, it’s a good time to examine the initial claims to see how they square with the data:
• “The new 1040 form will fit on a postcard.” Speaker of the House Paul Ryan stated on Nov. 2, 2017: “We’re making things so simple that you can do your taxes on a form the size of a postcard.” The reality is that the taxes have not gotten simpler. Even with the higher standard deduction, taxpayers still have to track individual deductions to make sure the standard deduction is worth taking. The conservative Heritage Foundation, which supports the tax bill, conceded that “the tax reform bill in many cases increases complexity — especially for businesses.”
• “The tax cut will pay for itself.” Despite repeated claims from the White House, virtually no economists or budget experts believed the tax bill’s $1.5 trillion cost could be funded by anything other than debt. And sure enough after the bill went into effect, the nation’s deficit has continued to grow despite a general economic expansion that began early in the Obama administration and has continued into the Trump era.
According to the Congressional Budget Office, “The federal budget deficit was $738 billion for the first eight months of fiscal year 2019 …, $206 billion more than the deficit recorded during the same period last year.” The CBO estimated in May 2018 that the tax law would add $1.9 trillion to the national debt over 10 years when taking into account debt service costs.
• “Money will come flooding back from overseas.” Trump stated on Aug. 8, 2018: “We expect to have in excess of $4 trillion brought back very shortly.” The bill cut the tax rate on repatriated money in the hope that a flood of money would return home. But according to U.S. Commerce Department data, companies have repatriated only $664.9 billion in 2018, a fraction of what Trump expected.
• “The tax cut will primarily benefit middle-income taxpayers.” Trump stated on Oct. 11, 2017: “Our framework ensures that the benefits of tax reform go to the middle class, not to the highest earners.” But the tax bill actually provides its biggest break for corporations, which is evidenced by steeply declining corporate tax revenue: Corporations paid $92 billion (31%) less in taxes in FY 2018 than they did in the year before.
A report from the Congressional Research Service on May 22, 2019 concluded: “From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%.” In other words, the tax bill was a huge giveaway to already powerful corporations while barely helping the American worker.
To make matters worse, as economist Paul Krugman and others have noted, because about a third of U.S. corporate profits flow to foreign nationals, a third of the tax cut flowed abroad rather than staying at home.
In summary, it is clear that the Tax Cuts and Jobs Act was always intended to benefit wealthy Republican donors but was pitched as something that would primarily help the middle class as well as the economy in general. In the end, there has been no meaningful tax relief for the middle class, and the benefits handed to large corporations have added significantly to the national debt.