There is no consensus or agreement among economists and fiscal analysts on whether the 2017 Tax Cuts and Jobs Act was the right economic incentive package at the right time. The two major political parties still cannot agree on whether it was beneficial to all Americans.
Almost all the law's critics point out that, combined with no corresponding cuts in spending, the sweeping tax code reform caused the U.S. federal budget deficit to spike and argue it increased wealth inequality. Meanwhile, advocates say it spurred economic growth and boosted almost all incomes.
“(The) Tax Cuts and Jobs Act of 2017 was a big win for the wealthiest 1%, with Montana households with incomes over $2 million receiving a tax cut of $200,000 on average,” explained Rose Bender, a senior fiscal policy analyst at the nonprofit Montana Budget and Policy Center. “That equates to one person receiving an annual tax cut equal to the annual wages for 11 Montanans working full-time at minimum wage.”
She noted the individual tax cuts expire in 2025, the year after President Trump would no longer be in office were he to be re-elected.
"This regressivity and inequity is only going to get worse over time," Bender continued. "While many of the corporate tax cuts are permanent, the individual income tax provisions that provide some modest benefit to households living on lower and moderate incomes expire in 2025."
In fact, experts from the Tax Policy Center found that in 2026 and 2027, the expiration of the individual income tax cuts "will result in a reduction of after-tax income for taxpayers in all income groups" relative to before the law was passed.
The Montana Budget and Policy Center argued in a 2016 paper that a 2003 tax cut enacted by the Montana Legislature cost the state nearly $1 billion in lost revenue and also largely benefited the wealthy.
But Todd O’Hair, the president and CEO of the Montana Chamber of Commerce, said the TCJA has positively impacted Montana businesses.
“Small businesses like Sub S Corps, LLCs, sole proprietors, and partnerships receive a sizable deduction on qualified business income, and the adjustments made to the estate tax or ‘death tax’ provide a huge relief for multi-generational, assets rich and cash poor, agricultural farm and ranch businesses,” he said.
“Before March, Montana’s economy was doing well, as was evidenced by historically low unemployment rates. Nationally, the economy was heating up (before the pandemic), and it’s hard to deny the impact tax cuts had in spurring our economy and creating jobs.”
A Missoulian analysis of data from the Montana Department of Revenue found that a small proportion of the highest-income Montana taxpayers reaped a huge chunk of the law's savings. The top 3.4% of Montana income earners saved an extra $359 million in tax year 2018 due to the law, over 40% of the total tax savings. Meanwhile, the bottom 96.6% of income-earners split $524 million, the remaining 59% of the total savings.
To see the first part of the Missoulian's analysis and how it affected home buying, read Sunday's paper or visit online here.
Mike Dennison, a reporter for KTVH news in Helena, reported on Friday that an internal Republican memo shows that cutting the top state income tax rate is a priority for many House Republicans in the 2021 Montana Legislature.
Three years in, the 2017 Tax Cuts and Jobs Act is still disputed along partisan lines.
Montana’s Republican Congressional delegation voted for and wholeheartedly supports the law, saying it has promoted economic growth.
A spokesperson for Republican U.S. Rep. Greg Gianforte said over 455,000 Montana households are benefiting from the TCJA's doubling of the standard deduction amount.
"Greg believes hardworking Montanans should keep more of what they earn," said spokesperson Travis Hall. "The Tax Cuts and Jobs Act cut tax rates for all Montana taxpayers and helped Montana families with an average tax cut of about $2,000."
U.S. Sen. Steve Daines said in a statement to the Missoulian that he's very much a backer of the bill.
“I strongly support the Tax Cuts and Jobs Act, and I worked hard to ensure this important legislation cut taxes for small businesses, helped create jobs and put more money in the pockets of hardworking, middle-class Montanans instead of Washington, D.C., bureaucrats and lobbyists," said Daines, a Republican. "Hundreds of thousands of Montanans and small businesses are benefiting from changes made by the Tax Cuts and Jobs Act, such as the doubled child tax credit, doubled standard deduction, the elimination of the individual mandate, and the 20% deduction for small businesses. Thanks to the legislation, Montana saw rapid job creation and wage growth in 2018 and 2019, all while Montana’s state revenue collection exceeded projections.”
Non-farm payroll employment in the United States grew by 2.7 million in 2018, an average monthly gain of 223,000 jobs, according to the U.S. Bureau of Labor Statistics.
But Democrats have consistently attacked the bill as an unnecessary give-away to the rich.
A spokesperson for U.S. Sen. Jon Tester, a Montana Democrat, put it this way:
“Senator Tester voted against Mitch McConnell’s tax scam because it was designed to give handouts to multimillionaires and massive corporations rather than focus on common sense tax reform for Montana families and businesses who need it," said Roy Loewenstein, Tester's press secretary. "In the three years since it passed, that’s exactly what has happened, and it leaves our kids and grandkids holding the bag on trillions of dollars in debt for generations to come.”
The $1.5 trillion bill was the most significant overhaul of the U.S. tax code in three decades, but it was not a bipartisan effort. The law was created largely by Congressional Republicans and the final version passed the U.S. Senate on a 51-48 vote. It was signed by President Donald Trump in December of 2017. There are myriad provisions in the bill, too numerous to list here, with supporters and detractors of certain provisions on both sides of the aisle. Among the most significant was a 40% reduction of the top corporate tax rate.
Republicans argued that the bill would not expand the federal budget deficit because it would boost economic activity to a higher-than-would-otherwise occur level, which would increase revenues (taxes) to the government, thereby offsetting the revenue decreases (tax cuts).
"We are totally confident this is a revenue-neutral bill and probably a revenue producer,” Senate Majority Leader Mitch McConnell, a Republican from Tennessee, told CBS news in December of 2017.
Republicans were not accurate in their assessments that the new law would increase revenues to levels beyond what would occur without the law or that it would spur economic activity to a level that would "pay for the tax cut."
As economist William Gale noted for the Brookings Institution, actual corporate income tax revenue in fiscal year 2018 was $135 billion lower than the Congressional Budget Office had projected the revenues would be without the Tax Cuts and Jobs Act. And individual income tax collections were $97 billion below pre-TCJA projections.
Gale, a senior fellow for economic studies at Brookings, argued in a column that the tax cut certainly did not pay for itself.
"In the short term, we know some things it did," he told the Missoulian. "It raised the deficit, and it made income much more unequal. The proponents say it boosted the economy, but there's very little evidence of that. The growth rate in the eight quarters after the TCJA was passed was virtually the same as the eight quarters before it was passed."
Gale said the law's tax cuts, as a proportion of income, were much larger at the higher-end of the income spectrum than at the lower end. He said the top 10% of income earners nationwide got half the tax benefits from the law.
"There were a lot of provisions, like for unincorporated businesses and special tax breaks for pass-through entities, that benefit high income people," he said. "Almost all of those benefits go to very high income people."
Gale said he doesn't know if Republicans were simply mistaken in believing that economic activity would increase enough to offset the decrease in revenues to the government.
"I think they know in their hearts that it cost revenues and would make distribution of taxes unequal," he said. "I don't want to speak for the Republicans that voted for this, but I think they might find those outcomes attractive, rather than unattractive."
Cutting the tax rate is a "very inefficient way to stimulate new investment," he added, because it's essentially a "windfall gain" on investments made in the past.
Gale believes a more effective way to stimulate the economy is to subsidize new investments rather than letting corporations pay less taxes and decide what to do with the money.
Growth did not accelerate as Republicans had predicted, either.
“(A)s I’ve said at 3% economic growth, this tax plan will not only pay for itself but in fact create additional revenue for the government,” U.S. Treasury Secretary Steven Mnuchin told Business Insider in August of 2018. The economy did indeed grow at 3.1% that year.
The actual U.S. economic growth rate in 2019, however, was 2.3%, the slowest growth in three years. That’s over 23% lower than Mnuchin’s prediction of 3% growth. The fourth-quarter growth in 2019 was 2.1%.
To balance a budget, and not increase a fiscal year deficit, spending and revenues have to be equal. The Congressional Budget Office projected the 2017 Tax Cuts and Jobs Act would increase the annual deficit by about $200 billion over a decade, or to almost $2 trillion with interest, according to Business Insider.
Federal spending increased since President Trump’s election in 2016 from $3.85 trillion to $4.4 trillion in 2019. According to Treasury Department data, the federal government only took in $3.5 trillion in tax dollars and other revenue in 2019, meaning the federal deficit for that year was $984 billion, the highest amount since 2012 when the government was spending more than revenues to recover from the 2008 financial crisis. That’s despite President Trump’s campaign claims that he would wipe out the nation’s federal debt within eight years.
Corporate revenues to the federal government were "at the lowest level in 2018 as a share of the national economy since 1965, the results of the Tax Cuts and Jobs Act," according to the Bipartisan Policy Center.
Of course, government spending has ballooned during the pandemic as both parties wanted to stimulate the economy.
Hunter Blair, a former budget analyst at the left-leaning think tank Economic Policy Institute, noted that inflation-adjusted non-real estate fixed investment "continued along its pre-TCJA trend" and hit a high of 6.9% in 2018 before falling all the way to 1.3% in 2019.
"To be clear, if the TCJA’s corporate rate cuts were working, we would be seeing a permanent rise in investment," Blair wrote in 2019. "Instead, investment growth is cratering."
Garrett Watson, a senior policy analyst with the nonprofit Tax Foundation, said the law had what he and other experts consider to be good provisions and others that are questionable.
"Advocates argued it would pay for itself, and it very clearly did not," he said. He said the economy performed well in 2018, but the trade war (and resulting increase in prices for goods) enacted by President Trump "offset" a lot of the benefits Americans got from the TCJA.
"Everyone agrees, even the skeptics, that the American economy was strengthening," Watson said. "Some argue it was a continuation of an existing trend from the Obama years. The challenge over the next many years will be to isolate what the TCJA did, given the promises made."
Watson agreed with Gale by saying that tax cuts are a "retroactive windfall on stuff people have already done" and said tax incentives on new investment are better policy.
"Providing a tax break for activity that's already happened, those are the kinds of cuts we try to dissuade in our policy recommendations," he said.