The Congressional Research Service, the non-partisan research arm of the U.S. Congress, released “The Economic Effects of the 2017 Tax Revision: Preliminary Observations,” on May 22, 2019. The Tax Revision Act permanently reduced the corporate tax rate to 21% and revised business tax deductions and international tax rules. It also substantially, although temporarily (until 2025), revised individual income taxes.
The report finds that “a relatively small (if any) first-year effect on the economy” (gross domestic product) resulted from the Tax Revision Act. According to estimates by the Congressional Budget Office,
From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1%. . . Although significant amounts of dividends were repatriated in 2018 compared with previous years, the data do not appear to show a significant increase in investment flows from abroad. While evidence does indicate significant repurchases of shares, either from tax cuts or repatriated revenues, relatively little was directed to paying worker bonuses, which had been announced by some firms.
The report found that reductions for individuals were relatively small compared with the corporate rate reduction (the top individual rate of 39.6% was reduced by 2.6 percentage points, compared with 14 percentage points for the corporate rate). Benefits of rate reductions for individual taxpayers, by increasing the standard deduction and child credit, were largely offset by the elimination of personal exemptions and limitations on itemized deductions, primarily by imposing a dollar cap on state and local tax deductions.
The report also found that real wages grew more slowly than GDP. Although the tight labor market should have put upward pressure on wage rates, evidence from 2018 indicated that labor compensation (adjusted for personal consumption expenditures) effectively grew by 2.0%, much more slowly than the 2.9% overall growth rate in GDP.
Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2018 (April 2018)
U.S. Department of the Treasury, Distributional Analysis of the U.S. Tax System (2015-2018)
Jane G. Gravelle & Donald J. Marples, Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97) (May 1, 2018)