Yet, two years after passage of a signature element of Trump’s economic agenda, the Tax Cuts and Jobs Act, the US economy looks in many ways like it did before the landmark tax cut. Monthly change in non-farm employment 2016-2019. All Rights Reserved, This is a BETA experience. The rationale for lowering corporate taxes, in a nutshell, is that corporate taxes discourage businesses from investing, holding back national wealth growth in the future. Overall, the US economy had a burst of growth in 2018, right after Congress passed the TCJA. This was the slowest pace since 2016 and slightly below the 2.4 percent rate in 2017. Defenders of the tax cuts will say that had Trump’s bill not passed, the economy would have slowed -- in other words, that lowering taxes kept the recovery going longer than it otherwise would have. The president brags that he had created the “best economy in history,” which was due significantly to his tax cuts. To contact the author of this story:Noah Smith at nsmith150@bloomberg.net, To contact the editor responsible for this story:James Greiff at jgreiff@bloomberg.net, Russia's Second Wave Raises Risk of Economic Scars, Buyout Firms Explore New Lows in the U.K. Bargain Bin, City of London's Brexit Departures Are Speeding Up, Why 2021 Would Be Inauspicious For a New Iran Deal, Trump's Feelgood Message Can't Mask the Doubts, IPhone Delay Interrupts That Supply Chain Rhythm, Trump’s Health Is Another Mystery We Didn’t Need, It’s Getting Better and Worse at the Same Time, Bristol Myers's $13 Billion Deal Is Hearty Indeed. A major drag on the economy was business investment, the area that the Trump Administration claimed would benefit most from the TCJA’s business tax cuts. Ever since Congressional Republicans passed the Tax Cuts and Jobs Act (TCJA) in 2017, the left has sought to portray the tax cuts as a bad deal for the middle class. But after a few quarters of strong growth, business investment seems to have slumped—perhaps due in part to the president’s tariffs which are themselves tax increases on US businesses and consumers. The most reasonable conclusion seems to be that corporate tax cuts are not a particularly powerful tool for boosting economic growth in the U.S. The tax cuts did increase economic growth over previous years and over the Congressional Budget Office-predicted baseline, though not quite reaching the Trump administration’s 3% annual goal. But in 2019 growth was essentially the same as in 2017. Hard data on the impact of the 2017 tax cuts is still fuzzy, but a economic simulation shows gains to the top two-fifths of society and losses for everyone else. The authors find that investment rose less for companies with higher price markups -- a standard measure of a company’s power to dominate a market. Whatever the benefits, they’re too slight to be meaningful. Real disposable income was up 3 percent, slower than the 4 percent increase in 2018. The effect in the long run might be more positive, but given the drag from the trade war and other events, that will be hard to know. At the same time, yields on 10-year Treasury bonds also continued their long-term decline, falling from 2.48 percent before passage of the CJA to about 1.5 percent this week. The report finds only a very modest growth bump in 2018. Defenders of the tax cuts will say that had Trump’s bill not passed, the economy would have slowed -- in other words, that lowering taxes kept the recovery going longer than it otherwise would have. Before it's here, it's on the Bloomberg Terminal. Job growth remains solid but weaker than in the period immediately after passage of the TCJA. Trump tax cuts did little to boost economic growth in 2018, study says Published Wed, May 29 2019 12:03 PM EDT Updated Wed, May 29 2019 1:13 PM EDT Jeff Cox @jeff.cox.7528 @JeffCoxCNBCcom The Tax Cuts and Jobs Act (TCJA) reflecting President Trump's plan was ultimately signed into law on Dec. 22, 2017. In the second and third quarters, growth did rise slightly above the 2013-2018 trend line, but this may have been due to random fluctuation -- after all, 2014 and early 2015 saw an even bigger bump, which then faded. The Trump tax cuts should be the last piece of evidence needed to end the illusion of supply-side economics. However, even before the pandemic, Trump’s tax cuts had failed to fulfill their promises, as detailed in this Chartbook: On Fairness: It was not a middle-class tax cut. Noah Smith is a Bloomberg Opinion columnist. So any acceleration in investment might be due to factors other than taxes. Opinions expressed by Forbes Contributors are their own. The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Pub.L. Consumer spending continues unabated. The Tax Cuts and Jobs Act was passed in late 2017. A standard model would predict that they should have increased investment by  between 3.4 and 7.2 percentage points by the end of 2018. Yet looking at a graph of growth, one has to squint very hard to see a change in 2018: Source: Federal Reserve Bank of St. Louis. The other major factor was government spending, which grew in real terms by 2.3 percent last year. A new paper from the International Monetary Fund may help shed light on the question. So the lack of a major growth acceleration in 2018 isn’t conclusive proof that the tax cuts were a dud. Growth was driven mostly by consumer and government spending. A study by economists at Deutsche Bank AG before the TCJA became the law indicated that the overall impact of President Trump’s tax cuts should be between historical ditches and should not elicit so … I am author of the book "Caring for Our Parents" and senior fellow at The Urban Institute, where I am affiliated with the Tax Policy Center and the Program on Retirement. It put more money in consumer’s pockets and, along with the likely wealth effect of the rising stock market, generated some additional consumer and business spending early on. Add it up, and after two years, the TCJA seems to have had remarkably little impact on the overall economy. Clearly, it must be the fault of those tax cuts. Despite the Trump Administration’s rosy promises that the post-TCJA economy would boom, it has instead grown on many dimensions at the roughly the same steady, unspectacular pace as it did prior to passage of the tax law. Have a confidential tip for our reporters? The S&P 500 index rose by 23 percent from late 2017 to this week. Still, it accounted for more than two-thirds of 2019’s overall growth. But by the end of 2018, Trump’s trade war with China was already in full swing. Employment growth was strongest in health care and retail, but the number of mining jobs declined, and manufacturing employment was flat. In fact, investment looks like it might have accelerated a bit in late 2018: But there are several caveats here. WASHINGTON DC, USA - FEBRUARY 04: U.S. President Donald Trump delivers his State of the Union ... [+] address at the US Capitol. First, the CRS report notes that investment grew most strongly in intellectual property, and less strongly in structures. The real question is whether the tax cuts increased investment. Business fixed investment was slightly negative for the year, a sharp contrast to the nearly 5 percent real growth rate in 2017. Thus, if the cuts had any positive effect, we’d expect to see it in the investment numbers first. Defense outlays grew by 4.9 percent. The biggest effect of the Trump tax cuts is obvious: People who own businesses and other sources of concentrated wealth will have a lot more money, and the federal budget will have less. Quarterly Change in Business Investment 2019. The paper specifically looks at the impact of the cuts on investment, attacking the question from a variety of angles. A major drag on the economy was business investment, the area that the Trump Administration claimed would benefit most from the TCJA’s … Consumer spending grew by 2.6 percent in 2019, a more modest pace than 2018’s growth rate of 3%. A Craving for Normalcy Spells the End of a Populist Presidency, The Race to Replace the City of London Begins. The impact of the trade war -- and other surprises yet to come -- will almost certainly drown out the effect of the tax cuts. As a share of GDP, the 2019 deficit hit 4.6 percent, up from 3.5 percent in 2017. So economists are racing to issue a verdict on their effects, based on about one year of data. But the index has been rising more or less steadily since it bottomed in the depths of the Great Recession in early 2009. The stock and bond markets are up, business investment is down, and wages are up—a little. But it does suggest that any positive impact was modest. Stocks likely were helped by an increase in corporate profits driven in part by the corporate tax cuts in the TCJA. That’s up almost 2 percent from the same time last year, and up 6 percent from fiscal 2017, which was before the Trump tax cuts went into effect. This is a much worse outlook for the current deficit than CBO showed …