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TCJA produced little economic benefit in first year

June 1, 2019
Rep Kevin Brady R-Texas former House Ways and Means chairman

Rep. Kevin Brady (R-Texas), chairman of the House Ways and Means Committee when his party pushed through tax reform in December 2017, celebrates in June 2018 the six-month anniversary of the Tax Cuts and Jobs Act. A new Congressional report, however, doesn't have much positive to say about the new tax law's first-year economic effects.

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.

Growth in Real Gross Domestic Product 1Q 2013 Through 4Q 2018_CRS report

Source: Congressional Research Service, "The Economic Effects of the 2017 Tax Revision: Preliminary Observations"

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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It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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