New York Times, What Did the Trump Tax Cuts Do? Nobody Really Knows.:
Seven years ago, when Republicans passed the most significant overhaul of the tax code in a generation, they were sure the law would supercharge investment, raise wages and shift the American economy into a higher gear.
So did it?
The answer, at least for now, is largely lost to history.
A pandemic and a surge in inflation convulsed the global economy not long after the law passed in 2017, scrambling the data that analysts would have typically relied on to draw conclusions about whether the tax cuts helped the economy grow the way Republicans had promised.
As a result, policymakers in Washington are now relying on only a partial understanding of the law’s past as they weigh committing roughly $5 trillion toward continuing it.
“Basically, from 2020 the data is kind of useless,” said Alan Auerbach, an economics professor at the University of California, Berkeley, who counts Kevin Hassett, a top economic adviser to President-elect Donald J. Trump, among his former students.
Economists have focused on just two years before the coronavirus pandemic, 2018 and 2019, to measure the law’s consequences for the most important economy in the world. But that’s a limited window for trying to discern whether the tax cuts prompted a cycle of investment and growth that can take years to play out. …
Not that everything about the 2017 tax law is a mystery. The legislation slashed marginal tax rates for almost every individual income bracket, created a larger standard deduction and expanded the child tax credit. For businesses, the law cut the corporate rate to 21 percent from 35 percent, temporarily incentivized new capital investments, overhauled the taxation of earnings overseas and offered a new deduction to owners of many typically smaller companies.
To Republicans, who passed the law over unified Democratic opposition in the first year of Mr. Trump’s first term, these changes amounted to an unqualified economic success. They credit the tax cuts with strong growth and wage increases in the years before the pandemic, warning that letting many of the 2017 cuts expire, currently scheduled to happen at the end of the year, would create an economic drag.
“We saw the power of these tax cuts in ’18, ’19 and going into January of ’20 before they were interrupted by Covid, and the great success that we had,” Scott Bessent, Mr. Trump’s pick to lead the Treasury Department, said at his Senate confirmation hearing on Thursday. “If we do not renew and extend, then we will be facing an economic calamity.” …
In a paper last year, a team of researchers from Harvard, Princeton and the University of Chicago reviewed several different ways of measuring the corporate response to the tax cuts. [Gabriel Chodorow-Reich (Harvard), Matthew Smith (Office of Tax Analysis, U.S. Treasury Department), Owen M. Zidar (Princeton) & Eric Zwick (Chicago), Tax Policy and Investment in a Global Economy] Despite some of the scattered data, the academics concluded that the lower corporate tax cuts had in fact helped stimulate more corporate investment.
The team then used what Eric Zwick, an economist at the University of Chicago and one of the paper’s authors, called “back of the envelope” modeling to extrapolate the effect of higher corporate investment to the performance of the entire economy. They estimated that the law would help the economy become 1 percent larger over 10 years, growth that in turn pointed toward roughly $750 more in wages for each American worker. Such an increase would still be far below the $4,000 per employee that Mr. Trump’s White House had originally promised the corporate tax cuts would generate.
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