On its second anniversary, the TCJA has cut taxes for corporations, but nothing has trickled down

It’s been two years since Republicans passed their Tax Cuts and Jobs Act (TCJA), enough time for its effects to have come into full view. As we lay out in a report released today with the Center for Popular Democracy, the economic data that has come in since its passage has not been kind to the argument of the TCJA’s proponents.

The centerpiece of the TCJA was a large cut in the corporate tax rate. Supporters of the TCJA made the supply-side argument that higher corporate profits would juice investment, which would eventually trickle down to faster productivity growth that would mechanically boost workers’ wages. The theory behind this relied on a long chain of economic events occurring, and it was clear from the very beginning that there was little reason to trust a single link in the chain.

Despite some disingenuous and cynical arguments surrounding wages and bonuses, if the TCJA is to work as its supporters claimed, then the first thing we would see is a substantial uptick in investment. After two years, there is no evidence of any investment boom. Instead, investment growth followed along its pre-TCJA trend for a couple of quarters and then cratered. Year-over-year investment growth has sunk from 5.4% at the time of the TCJA’s passage to just 1.3% in the most recent quarter.

Figure A

More evidence the Trump tax cuts aren’t working as advertised: Change in real, nonresidential fixed investment shows no investment boom

Years Real, nonresidential fixed investment
2003-Q1 -2.3%
2003-Q2 1.6%
2003-Q3 4.0%
2003-Q4 6.8%
2004-Q1 5.2%
2004-Q2 4.9%
2004-Q3 5.7%
2004-Q4 6.5%
2005-Q1 9.2%
2005-Q2 8.2%
2005-Q3 7.4%
2005-Q4 6.1%
2006-Q1 8.0%
2006-Q2 8.2%
2006-Q3 7.8%
2006-Q4 8.1%
2007-Q1 6.5%
2007-Q2 7.0%
2007-Q3 6.8%
2007-Q4 7.3%
2008-Q1 5.8%
2008-Q2 3.8%
2008-Q3 0.2%
2008-Q4 -7.0%
2009-Q1 -14.4%
2009-Q2 -17.1%
2009-Q3 -16.1%
2009-Q4 -10.3%
2010-Q1 -2.3%
2010-Q2 4.1%
2010-Q3 7.5%
2010-Q4 8.9%
2011-Q1 8.0%
2011-Q2 7.3%
2011-Q3 9.3%
2011-Q4 10.0%
2012-Q1 12.9%
2012-Q2 12.6%
2012-Q3 7.2%
2012-Q4 5.6%
2013-Q1 4.3%
2013-Q2 2.3%
2013-Q3 4.4%
2013-Q4 5.4%
2014-Q1 5.5%
2014-Q2 8.1%
2014-Q3 8.4%
2014-Q4 6.9%
2015-Q1 5.0%
2015-Q2 2.5%
2015-Q3 0.8%
2015-Q4 -0.9%
2016-Q1 -0.7%
2016-Q2 0.0%
2016-Q3 1.1%
2016-Q4 2.4%
2017-Q1 4.2%
2017-Q2 4.3%
2017-Q3 3.5%
2017-Q4 5.4%
2018-Q1 6.0%
2018-Q2 6.9%
2018-Q3 6.8%
2018-Q4 5.9%
2019-Q1 4.8%
2019-Q2 2.6%
2019-Q3 1.3%
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Note: Chart shows year-over-year change in real, nonresidential fixed investment from 2003Q1 to 2019Q3.

Source: Adapted from Figure A in Hunter Blair, "The Tax Cuts and Jobs Act Isn’t Working and There’s No Reason to Think That Will Change," Working Economics (Economic Policy Institute blog), October 31, 2019.

Source: Adapted from Figure A in Hunter Blair, The Tax Cuts and Jobs Act Isn’t Working and There’s No Reason to Think That Will Change, Economic Policy Institute, October 2019. Data are from EPI analysis of data in Table 1.1.6 from the National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis (BEA).

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To be blunt, this means that the $4,000 annual boost to average incomes that the White House Council of Economic Advisers promised to working families because of the TCJA did not—and will not—happen. While it’s been worse-than-advertised for working families, the TCJA has been an even bigger boon to large corporations and rich households. In fact, corporate tax revenues have come in even lower than the Congressional Budget Office originally projected, allowing corporations and their shareholders to make out like bandits.

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