The Tax Cuts and Jobs Act isn’t working and there’s no reason to think that will change

Proponents of the Tax Cuts and Jobs Act (TCJA) made bold claims about the effects that the TCJA’s corporate rate cuts would have on the paychecks of U.S. households. The economic theory rests on corporate rate cuts bringing forth enough additional savings to finance new investment spending. Specifically, higher after-tax corporate profits are passed down to shareholders in the form of higher dividends. These higher dividends attract more savings from abroad and incentivize U.S. households to save more. These extra savings finance new investments in plants and equipment, which boost the productivity of workers, and eventually that increased productivity boosts workers’ wages.

We pointed out at the time that in practice, this theory wasn’t likely to hold. After the TCJA passed, we indicated that by increasing deficits, the specifics of the TCJA didn’t even conform to the economic theory that was supposed to support it.

But that wasn’t enough to stop the TCJA’s proponents from making disingenuous arguments about the effects it was having on the economy. Proponents pointed to corporate claims that they were giving out bonuses or raising wages in the wake of the TCJA. The economic theory above shows clearly how this was nothing but a corporate PR ploy. Even in theory, it takes time for corporate profits to trickle down into worker wages, and we weren’t the only ones pointing this out. Unsurprisingly, data since then show those bonuses didn’t materialize for workers.

Kevin Hassett, then the chair of the Trump administration’s Council of Economic Advisers (CEA), went so far as to bless the truly economically absurd notion that “retroactive tax cuts” are a way to boost long-term growth, claiming that businesses invested more before the TCJA was passed because they somehow knew that some of the TCJA’s corporate provisions would be made retroactive.

But if you want to know if the TCJA is working as advertised, investment really is the key economic indicator to watch. If the TCJA’s corporate rate cuts are to even have a chance at reaching your paycheck, first investment has to boom. The results have been abysmal for the TCJA.

Figure A

Data still provides no evidence for an investment boom from the TCJA: Year-over-year change in real, nonresidential fixed investment, 2003Q1–2019Q3

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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Source: EPI analysis of data from table 1.1.6 from the National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis (BEA).

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Year-over-year real, nonresidential fixed investment growth continues to fall off a cliff. If the TCJA was working, we should have seen an investment boom. Instead, after the passage of the TCJA, investment growth continued along its pre-TCJA trend for a couple quarters before falling all the way to 1.3% in 2019Q3. To be clear, if the TCJA’s corporate rate cuts were working, we would be seeing a permanent rise in investment. Instead, investment growth is cratering.

There is little hope in the data that this will change anytime soon. Capital goods orders were down once again in September. And year-over-year growth of capital goods orders has seen a steady but sharp decline in the wake of the TCJA.

Figure B

The pipeline of capital goods doesn’t look much better: Year-over-year change in nondefense capital goods orders, excluding aircraft, February 1992 – August 2019

Date Year-over-year change
Feb-1993 9.2%
Mar-1993 4.6%
Apr-1993 4.8%
May-1993 2.9%
Jun-1993 4.7%
Jul-1993 6.2%
Aug-1993 8.8%
Sep-1993 4.5%
Oct-1993 10.6%
Nov-1993 7.3%
Dec-1993 12.8%
Jan-1994 7.5%
Feb-1994 12.9%
Mar-1994 11.8%
Apr-1994 13.9%
May-1994 13.2%
Jun-1994 16.1%
Jul-1994 13.1%
Aug-1994 13.0%
Sep-1994 13.2%
Oct-1994 13.3%
Nov-1994 14.0%
Dec-1994 6.7%
Jan-1995 18.9%
Feb-1995 10.7%
Mar-1995 11.8%
Apr-1995 8.8%
May-1995 13.0%
Jun-1995 7.7%
Jul-1995 4.4%
Aug-1995 7.0%
Sep-1995 11.1%
Oct-1995 9.4%
Nov-1995 8.4%
Dec-1995 10.9%
Jan-1996 1.3%
Feb-1996 6.5%
Mar-1996 8.0%
Apr-1996 2.8%
May-1996 4.3%
Jun-1996 7.5%
Jul-1996 11.1%
Aug-1996 6.9%
Sep-1996 0.8%
Oct-1996 4.5%
Nov-1996 5.8%
Dec-1996 -0.9%
Jan-1997 8.4%
Feb-1997 10.4%
Mar-1997 8.9%
Apr-1997 14.4%
May-1997 6.8%
Jun-1997 8.6%
Jul-1997 15.5%
Aug-1997 14.7%
Sep-1997 20.7%
Oct-1997 9.6%
Nov-1997 10.1%
Dec-1997 15.0%
Jan-1998 9.3%
Feb-1998 9.4%
Mar-1998 6.4%
Apr-1998 1.6%
May-1998 8.6%
Jun-1998 5.4%
Jul-1998 -3.9%
Aug-1998 -1.0%
Sep-1998 0.2%
Oct-1998 -2.2%
Nov-1998 0.3%
Dec-1998 4.1%
Jan-1999 0.6%
Feb-1999 -1.3%
Mar-1999 3.4%
Apr-1999 5.4%
May-1999 2.1%
Jun-1999 0.0%
Jul-1999 9.5%
Aug-1999 7.1%
Sep-1999 4.9%
Oct-1999 9.1%
Nov-1999 6.3%
Dec-1999 7.6%
Jan-2000 11.9%
Feb-2000 -0.1%
Mar-2000 6.7%
Apr-2000 9.3%
May-2000 6.6%
Jun-2000 15.7%
Jul-2000 2.4%
Aug-2000 4.9%
Sep-2000 5.5%
Oct-2000 3.5%
Nov-2000 1.2%
Dec-2000 -4.4%
Jan-2001 -5.0%
Feb-2001 3.8%
Mar-2001 -8.6%
Apr-2001 -14.9%
May-2001 -11.2%
Jun-2001 -18.8%
Jul-2001 -16.0%
Aug-2001 -16.4%
Sep-2001 -24.0%
Oct-2001 -21.8%
Nov-2001 -18.0%
Dec-2001 -18.0%
Jan-2002 -22.0%
Feb-2002 -16.9%
Mar-2002 -18.5%
Apr-2002 -8.9%
May-2002 -10.5%
Jun-2002 -11.9%
Jul-2002 -7.3%
Aug-2002 -5.6%
Sep-2002 -5.2%
Oct-2002 -1.3%
Nov-2002 -3.3%
Dec-2002 -5.0%
Jan-2003 3.1%
Feb-2003 -2.6%
Mar-2003 9.3%
Apr-2003 -1.5%
May-2003 0.3%
Jun-2003 2.2%
Jul-2003 -0.2%
Aug-2003 -1.3%
Sep-2003 8.1%
Oct-2003 4.0%
Nov-2003 5.4%
Dec-2003 9.4%
Jan-2004 2.6%
Feb-2004 4.2%
Mar-2004 6.3%
Apr-2004 5.8%
May-2004 3.1%
Jun-2004 6.6%
Jul-2004 8.7%
Aug-2004 3.0%
Sep-2004 8.2%
Oct-2004 5.6%
Nov-2004 5.7%
Dec-2004 6.2%
Jan-2005 15.3%
Feb-2005 12.4%
Mar-2005 2.9%
Apr-2005 11.7%
May-2005 9.0%
Jun-2005 10.7%
Jul-2005 7.3%
Aug-2005 16.2%
Sep-2005 3.8%
Oct-2005 10.8%
Nov-2005 9.3%
Dec-2005 8.2%
Jan-2006 7.9%
Feb-2006 8.7%
Mar-2006 15.1%
Apr-2006 8.8%
May-2006 12.3%
Jun-2006 8.0%
Jul-2006 11.0%
Aug-2006 6.7%
Sep-2006 14.8%
Oct-2006 11.3%
Nov-2006 10.0%
Dec-2006 7.6%
Jan-2007 2.5%
Feb-2007 2.1%
Mar-2007 2.8%
Apr-2007 4.4%
May-2007 1.0%
Jun-2007 2.2%
Jul-2007 1.9%
Aug-2007 2.8%
Sep-2007 -2.7%
Oct-2007 -2.0%
Nov-2007 -1.9%
Dec-2007 3.4%
Jan-2008 6.6%
Feb-2008 4.0%
Mar-2008 -0.9%
Apr-2008 5.3%
May-2008 5.8%
Jun-2008 4.2%
Jul-2008 4.0%
Aug-2008 0.4%
Sep-2008 -2.5%
Oct-2008 -8.8%
Nov-2008 -7.2%
Dec-2008 -18.2%
Jan-2009 -27.4%
Feb-2009 -24.4%
Mar-2009 -26.2%
Apr-2009 -32.4%
May-2009 -28.9%
Jun-2009 -25.5%
Jul-2009 -24.6%
Aug-2009 -24.6%
Sep-2009 -16.6%
Oct-2009 -12.4%
Nov-2009 -12.8%
Dec-2009 -2.3%
Jan-2010 5.7%
Feb-2010 6.2%
Mar-2010 14.6%
Apr-2010 11.8%
May-2010 17.2%
Jun-2010 18.3%
Jul-2010 10.6%
Aug-2010 17.0%
Sep-2010 12.9%
Oct-2010 10.9%
Nov-2010 14.5%
Dec-2010 13.7%
Jan-2011 15.9%
Feb-2011 10.6%
Mar-2011 10.6%
Apr-2011 17.8%
May-2011 11.7%
Jun-2011 6.3%
Jul-2011 14.9%
Aug-2011 10.3%
Sep-2011 9.6%
Oct-2011 17.0%
Nov-2011 7.7%
Dec-2011 10.8%
Jan-2012 11.6%
Feb-2012 18.1%
Mar-2012 11.9%
Apr-2012 9.6%
May-2012 8.2%
Jun-2012 5.5%
Jul-2012 0.4%
Aug-2012 -1.5%
Sep-2012 -2.6%
Oct-2012 -2.6%
Nov-2012 2.5%
Dec-2012 -3.1%
Jan-2013 2.8%
Feb-2013 -5.1%
Mar-2013 -5.1%
Apr-2013 -1.0%
May-2013 0.0%
Jun-2013 2.7%
Jul-2013 1.3%
Aug-2013 3.5%
Sep-2013 3.7%
Oct-2013 -2.3%
Nov-2013 2.3%
Dec-2013 0.7%
Jan-2014 -2.4%
Feb-2014 1.4%
Mar-2014 3.5%
Apr-2014 -1.5%
May-2014 -5.1%
Jun-2014 0.9%
Jul-2014 2.3%
Aug-2014 3.8%
Sep-2014 4.6%
Oct-2014 1.6%
Nov-2014 -5.7%
Dec-2014 -1.9%
Jan-2015 -3.1%
Feb-2015 -4.3%
Mar-2015 -5.7%
Apr-2015 -3.4%
May-2015 -4.4%
Jun-2015 -8.9%
Jul-2015 -5.2%
Aug-2015 -7.2%
Sep-2015 -8.6%
Oct-2015 -3.6%
Nov-2015 -3.3%
Dec-2015 -8.6%
Jan-2016 -6.1%
Feb-2016 -5.4%
Mar-2016 -5.9%
Apr-2016 -5.4%
May-2016 -5.5%
Jun-2016 -5.5%
Jul-2016 -5.5%
Aug-2016 -2.6%
Sep-2016 -5.0%
Oct-2016 -4.7%
Nov-2016 -2.7%
Dec-2016 0.9%
Jan-2017 0.8%
Feb-2017 3.1%
Mar-2017 4.3%
Apr-2017 5.1%
May-2017 7.6%
Jun-2017 6.2%
Jul-2017 6.1%
Aug-2017 4.4%
Sep-2017 13.2%
Oct-2017 11.8%
Nov-2017 7.5%
Dec-2017 10.3%
Jan-2018 6.2%
Feb-2018 7.7%
Mar-2018 5.9%
Apr-2018 6.8%
May-2018 6.8%
Jun-2018 8.4%
Jul-2018 9.1%
Aug-2018 7.6%
Sep-2018 1.7%
Oct-2018 4.1%
Nov-2018 6.1%
Dec-2018 1.9%
Jan-2019 4.1%
Feb-2019 2.4%
Mar-2019 3.8%
Apr-2019 1.1%
May-2019 1.1%
Jun-2019 0.9%
Jul-2019 -0.8%
Aug-2019 -0.4%
ChartData Download data

The data below can be saved or copied directly into Excel.

Source: EPI analysis of data from U.S. Census Bureau, Manufacturers' Shipments, Inventories, and Orders.

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The TCJA’s corporate rate cuts haven’t produced the investment boom proponents promised, but what they have done is exacerbate decades of rising income inequality. They should be repealed.