Did the GOP Tax Cuts Work?

Photo by Sharon McCutcheon on Unsplash

Donald Trump had things going his way for two years. The GOP controlled the House and the Senate. He’d promised a lot during the campaign and now he was in a position to deliver. There weren’t many policies that he actually did deliver on but a bill providing for inordinately large tax cuts to the already wealthy was one of them.

Here’s What the GOP Promised Their Tax Cuts Would Do

The Republicans made several promises as to what their tax cuts would do:

  1. They would pay for themselves.
  2. They’d go mainly to the middle class.
  3. The richest of the rich wouldn’t realize many benefits from the bill.
  4. They would lead to investment and economic growth that would raise working families’ wages.

Readers won’t be surprised to hear that none of these promises were kept. Let’s look at each in turn.

Tax Cuts Will Pay for Themselves

Steve Mnuchin, among others, insisted that the tax cuts would pay for themselves. The economic growth they’d create would generate more revenues. We’d get that economic growth, better wages, and more money in middle-class pockets essentially for free, according to the last administration.

None of this was actually expected to happen by any serious economists. And they were right…none of this came remotely close to happening. In fact, the law has paid for only a fifth of itself.

Tax Cuts Will Lead to Economic Growth

The argument that tax cuts would pay for themselves was based largely on the guess that the cuts would create substantial economic growth. In fact, the tax cuts had little or no impact on either investment or economic growth. The administration promised that the substantial cuts would lead to changes in corporate behavior such that they would make capital investments (new factories, new equipment, new tooling, new products) that would quickly lead to more jobs. That promised investment boom never took place. Instead, companies bought back their own stock, a large (and undeserved) windfall to senior managers and wealthy stockholders.

The fact is that tax rates don’t impact business investment decisions to any great extent. As Paul Krugman tells us: “There aren’t many potential business investments that will be worth doing with a 21 percent profits tax, the current rate, but weren’t worth doing at 35 percent, the rate before the Trump tax cut.”

Tax Cuts Will Lead to Higher Wages

The White House Council of Economic Advisors under Trump claimed that the tax cuts would result in a jump in wages that would be somewhere between $4000 and $9000 annually. To be fair, the CEA never quite got around to indicating just when those gains would be seen or how they’d be distributed among the different wage groups, but that didn’t stop the administration from spreading the word that most of those gains would come very quickly and would be realized by working families. Their argument was that, because consumers ultimately pay corporate taxes (a claim for which there is little evidence), corporations would quickly turn their tax windfalls into wage increases for their employees. The administration also claimed that the repatriation of corporate dollars allowed by the new tax law would be translated quickly into increased wages.

In fact, though wages increased a bit as a result of tight labor markets at the time, they increased less than the growth in GDP suggested they should. There was no increase in wages attributable to the tax cut. One might even argue that the tax cut actually created a lower rate of increase than might have been expected as corporations turned the tax windfalls into stock buybacks and increased dividends.

Workers, Not the Rich, Would Benefit

“By eliminating tax breaks and special interest loopholes that primarily benefit the wealthy, our framework ensures that the benefits of tax reform go to the middle class, not to the highest earners,” Trump said Oct. 11 in Harrisburg, Pa.”

As the graph below illustrates, the tax cuts were weighted heavily in favor of the already wealthy. Working families could certainly have benefitted from substantial tax cuts but they didn’t get them.

This graph shows the unequal and unjust distribution of the 2017 tax cuts.

In fact, by 2027, the tax cuts will benefit only the very wealthy.

How is it, then, that Republicans were wrong about the anticipated effects of their 2017 tax cut? Well, they’ve always been wrong about the “benefits” of tax cuts, especially when only the rich realize them. Supply-sider Ron Reagan insisted that his tax cuts for the very wealthy would trickle down to workers. It never happened. Rather, as the wealthy got their tax cuts, the economy went pretty much nowhere while the deficit soared. By the end of Reagan’s two terms, he had signed tax increases that negated his tax cuts because of the ballooning national deficit.

The GOP made the same promises during the Bush II years and passed two tax cuts in 2001 and 2003. All we got for those policies was the Great Recession.

Well, the Republicans aren’t wrong about the effects of their tax cuts so much as they simply lie about them. They know full well that tax cuts won’t pay for themselves, provide economic stimulus, or increase wages or employment for working families. And they don’t really care. Because their tax cuts do one thing well that they do care about: put money into the pockets of their wealthy donors.

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George Bohan

George Bohan

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Born and raised in the South, living in Ohio. Writes about politics and management.