During the rushed, ahem, debate of the Tax Cuts and Jobs Act (TCJA) in late 2017, its Republican sponsors touted the bill's economic benefits.
The cuts to U.S. businesses would prompt more domestic investments. Workers would get bonuses and/or raises. This would speed up the economy enough so that the tax cuts would pay for themselves.
Meanwhile, Democratic opponents slammed the TCJA as a giveaway to the rich, corporate and individuals alike. It's just another version of trickle-down economics, which have been shown in prior attempts not to work. And any benefits to workers would be offset in the long term by the growing federal deficit the bill feeds.
Nonpartisan review: Those arguments are still ongoing, but last week we also got input from a disinterested third party on the tax law's effectiveness.
The verdict of the nonpartisan Congressional Research Service (CRS)?
Its May 22 report on the economic effects of the TCJA found that the most expansive tax reform since the major 1986 Tax Reform Act is that the 2017 bill basically had a negligible effect in its first year on the U.S. economy.
"In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office's (CBO’s) projected rate published in 2017 before the tax cut. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy," wrote Jane G. Gravelle, CRS' Senior Specialist in Economic Policy, and Donald J. Marples, CRS Specialist in Public Finance.
Tax fight still raging: As might be expected, the CRS report immediately led to the opposing sides retreating to their corners — or rather their favorite social media cites — and issuing "I told you so" statements.
"Republicans tried to sell the American people a bill of goods to justify hundreds of billions of giveaways for corporations and the wealthy," said Oregon's Sen. Ron Wyden, the top Democrat on the Senate Finance Committee.
GOP defenders pointed to the CRS's own preliminary characterization of its assessment, noting that true effects of their tax law changes can't be accurately measured until the bills tax savings are given more time to work.
But CRS threw water on that prediction/hope, too.
According to the report:
"Although growth rates cannot indicate the tax cut's effects on GDP [gross domestic product], they tend to rule out very large effects particularly in the short run. Although investment grew significantly, the growth patterns for different types of assets do not appear to be consistent with the direction and size of the supply-side incentive effects one would expect from the tax changes. This potential outcome may raise questions about how much longer-run growth will result from the tax revision."
The CRS report gets this week's Saturday Shout Out, with companion hails on the left to the Tax Policy Center and on the right to the Tax Foundation for their respective analyses of the CRS TCJA analysis.
The perfect weekend reading for every tax geek. Enjoy!
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