The Tax Cuts and Job Acts (TCJA) also referred to as the Trump Tax Cut was supposed to provide large tax cuts to middle class workers, increase their wages and increase corporate investments.
On February 5 2018 Donald Trump spoke to employees of the Sheffer Corporation in Blue Ash Ohio and said “And what I really want to do — and come here and give something very big back. And that’s tax cuts, I signed into law. Your paychecks are going way up. Your taxes are going way down.” He was referring to the TCJA he signed into law on December 22, 2017 and went into effect on January 1, 2018.
Based on analysis done by The Brookings Institute, the Congressional Budget Office (CBO), the Institute on Taxation and Economic Policy (ITEP) and Council of Economic Advisors (CEA) to name a few the reality of the TCJA was quite different upon implementation.
Corporate Tax Rate Impact
The TCJA reduced the statutory corporate tax rate from 35 percent to 21 percent. The effective tax rate moved from 23.4 percent to 12.1 percent. The stated intent was that this would accomplish two objectives: benefit the individual taxpayer through a trickle-down effect and promote corporate investment which would lead to higher wages.
What happened was that many corporations used the money gained from the tax cuts to buy back stock. This benefited the executives and the shareholders. The economy and real wages pace of change was the same as past years in 2018 but declined in 2019. Gross Domestic Product (GDP) grew 2.9 percent and real wages went up 2 percent. The following two charts show that the TCJA had little to no impact on GDP or real wages.
