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What effect did the 2017 Tax Cuts and Jobs Act have on U.S. businesses and families?

The content under the seven headings below consists of excerpts from the September 16, 2019 article by Economist Aparna Mathur appearing on the website of the American Enterprise Institute. The headings have been added to organize the information. Ms. Mathur’s article (linked below) discusses economists’ theories as to various causes underlying the below-listed 2018/2019 developments.

        1. Background

Corporate tax reform was a centerpiece of the December 2017 Tax Cuts and Jobs Act (TCJA). For decades, while other countries cut rates, the US did not change its corporate tax rate, resulting in the US having the highest statutory corporate tax rate in the developed world in 2017. The US rate was well above that of the Organization for Economic Co-operation and Development countries.

The TCJA provided a massive correction— by cutting the federal corporate tax rate by 14 percentage points, from 35% to 21%, a 40% reduction.

The rate cut was seen as important to keep the U.S. competitive against other countries as a destination for capital investment. 

While it has been only a year and a half since the TCJA became law, there is some, albeit limited, evidence on how it is affecting the economy.

     2. Corporations’ profits returning from overseas to the U.S.A.

  • The TCJA has had a discernible impact on repatriations, when US corporations bring back and realize overseas profits in the US. Repatriations saw a massive increase in the first quarter of 2018, and though the trend has slowed, repatriations are still well above their pre-TCJA levels. 
  • Inversions — when a US corporation restructures so it is headquartered in a foreign country, typically for tax purposes — are down.

     3. Companies are investing in the U.S.A., building plants and increasing capacity

  • Physical capital formation, as measured by changes in gross domestic fixed nonresidential investment, has grown 4.61 percent since the law’s passage in 2018. 
  • Equipment investment, which received special treatment due to the TCJA’s expensing provision, has also been growing since the TCJA.  

        4. Wages are up and unemployment is down

  • Wages have been growing at a nominal rate of above 3 percent since the TCJA.
  • Unemployment has dropped below what most analysts think of as full employment, and wages and incomes have both increased. 
  • Employee compensation rose 5.5 percent in 2018 and 3.4 percent in the first six months of 2019 alone (i.e., an annual rate of 6.8 percent). This is up from the 4.5 percent growth in 2017. 
  • Personal income grew 4 percent in 2018. Clearly, the labor market has been improving since the tax law was passed. 

     5. American families are receiving an increase in after-tax income

  • Most families received a tax cut because of the TCJA…. the average household paid approximately $1,600 less in 2018 than they would have under prior law, with middle-income households receiving a $900 increase in after-tax income. 
  • Total amounts of tax refunds remained the same or decreased due to the TCJA for most income thresholds, except for the $250,000 to $1,000,000 income group.
  • For the richest taxpayers, ….the deduction amount has resulted in marginally higher taxes paid. Other provisions have also raised taxes on high income earners. 

     6. The TCJA discourages corporations from storing profits overseas.

The TCJA included substantial changes in the international tax system that US multinationals have to adhere to. Under the earlier system, companies had an incentive to store profits overseas, since repatriated profits were subject to the high corporate rate of 35 percent. Several new provisions have now replaced that system of deferral. Instead of being able to avoid taxation indefinitely by keeping profits overseas, companies now owe a one-time tax on all previously accumulated profits stored overseas since 1986.

      7. The full Impact of the TCJA will be seen over a longer period of time

Impacts on investment and wages are typically shown to occur over much longer periods, definitely longer than a year and a half. 

Here is a link to this article on the site of the American Enterprise Institute: Don’t Give up on Tax Cuts/Jobs Acts

Aparna Mathur, Ph.D., is a resident scholar in economic policy studies at the American Enterprise Institute. Ms. Mathur has been an adjunct professor at Georgetown University’s McCourt School of Public Policy and has taught economics at the University of Maryland. She received her Ph.D. in economics from the University of Maryland, College Park.

Black Workers’ Wages Rising

February 7, 2020

The New York Times reports that African American workers are seeing their wages rise for the first time after a “decade of stagnation,” further evidence of the strength of the U.S. economy.

The Times report came as the U.S. Bureau of Labor Statistics reported that the economy created 225,000 new jobs in January, smashing expectations. Unemployment ticked upward to 3.6% -“ but that was due to more workers entering the labor force, generating the highest labor force participation rate thus far in the recovery from the Great Recession. Average hourly wage gains also rose slightly year-on-year, to 3.1%.

Black unemployment is near all-time lows, and now wages are climbing, the Times reported Friday: President Trump frequently celebrates the experience of black workers, noting correctly that the group’s unemployment rate is at its lowest on record.
Their wages are also going up -“ a New York Times analysis of government data found that wage growth for black workers has accelerated recently after lagging for much of the decade-long economic expansion.
The foregoing paragraphs are excerpts from the February 7, 2020 article (quoting the New York Times article of the same date) appearing on the website of Breitbart. Here is a link to this article on this site: Wages Rise

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Middle class was helped by Trump tax reform (Tax Cuts and Job Act of 2017)

May 13, 2019

  • The U.S. jobless rate is at a 50-year low.
  • Average hourly earnings have grown 3.2 percent over the past year
  • GDP grew by 3.2 percent in the first quarter of 2019.
  • Unemployment has been at or below 4 percent for the past 14 months
  • the economy has added an average of 218,000 jobs per month over the past year.
  • This positive economic news extends to key demographics:
  • unemployment for adult women is at 3.1 percent, a 66-year low
  • unemployment for Hispanics is at 4.2 percent -’ the lowest rate since this data was first collected in 1973
  • veteran unemployment is at just 2.3 percent, a 19-year low.

    H&R Block found that federal taxes were down almost 25 percent for 2018.
    The average household is seeing tax savings of almost $27,000 over the next decade, according to estimates released by the Heritage Foundation.
    Americans at every income level and in every Congressional district are seeing tax reduction.
    The foregoing paragraphs are excerpts from the May 13, 2019 article appearing on the website of FoxBusiness.com. Here is a link to this article on this site: Trump Tax Reform for the Middle Class

  COMPARE:

Trump/Pence Administration

2016 to Present:

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6.1 Million Individuals Off Food Stamps Under Donald Trump

The USDA showed that 6.1 million individuals discontinued their participation in the Supplemental Nutrition Assistance Program (SNAP) between February 2017— when the president completed his first full month in office— and November 2019.

When Trump took office, 42,297,791 individuals and 20,937,903 households were enrolled in SNAP.

Currently 36,223,717 individuals and 18,448,588 households are participating in SNAP.

Source: KATHERINE RODRIGUEZ, Breitbart News 15 Feb 2020 Food Stamps

U.S. Economy Created 225,000 Jobs in January

February 7, 2020

The U.S. economy added 225,000 jobs in January and the unemployment rate ticked up to 3.6.
Economists had expected the economy to add 160,000 jobs. December’s figure was revised up from 145,000 to 147,000.
The unemployment rate edged up because the labor force participation rate increased, meaning the strong labor market drew more people into the workforce. The participation rate rose to 63.4 percent in January, the best rate since the last recession.
The employment to population ratio for prime age workers (ages 25 to 54) rose to 80.6 percent, the highest since 2001.
The Department of Labor said that notable job gains occurred in construction, in health care, and in transportation and warehousing.
Average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $28.44. Over the past 12 months, average hourly earnings have increased by 3.1 percent.
The foregoing paragraphs are excerpts from the June 10, 2020 article appearing on the website of Breitbart. Here is a link to this article on this site: January US Jobs Creation

3.7 Million Jobs Lost to China during 2001-2018

Data from the nonpartisan, nonprofit Economic Policy Institute¹ finds that 3.7 million jobs have been lost to unbalanced trade with China since 2001. Of that, 2.8 million jobs were in manufacturing. Every single US state and congressional district has lost jobs to China. 

Source: Robert E. Scott and Zane Mokhiber, "Growing China trade deficit cost 3.7 million American jobs between 2001 and 2018," Economic Policy Institute, Jan. 30, 2020, 

Link to report: US Jobs Loss


The Historic U.S. Job Market of 2018/2019

November 1, 2019 U.S. Government Report: The longest economic expansion in U.S. history continues

  • Since the President’s 2016 election, the economy has added over 6.7 million jobs—more than the combined 2018 populations of Wyoming, Vermont, Alaska, North Dakota, South Dakota, Delaware, Rhode Island, and Montana.
  • This total is 4.8 million more jobs than the Congressional Budget Office projected would be created in its final forecast before the 2016 election.
  • The U.S. unemployment rate dropped to 3.5 percent in September, its lowest level in 50 years. It increased slightly to 3.6 percent in October.
  • The unemployment rate for African Americans reached a new series low of 5.4 percent, falling 2.6 percentage points since President Trump’s election.
  • Since 2016, 24 states achieved or matched their lowest-ever unemployment rates..
  • Since 2016, 35 states had unemployment rates below 4 percent. In comparison, only 14 states had unemployment rates below 4 percent when President Trump was elected.
  • Nearly 500,000 manufacturing jobs have been created since the 2016 election. In comparison, 20,000 manufacturing jobs were lost in the 12 months prior to the 2016 election.

Source: Whitehouse.gov 11/1/19 Report

Link: Whitehouse.gov-Report-11.1.19

Obama/Biden 

Administration 

2008 to 2016:

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