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This blog post is part of a series dedicated to analyzing the impact of the Tax Cuts and Jobs Act. Click here to see all of the blogs in the #TCJANowWhat series.
I’ve previously argued that the Tax Cuts and Jobs Act (TCJA) was deeply flawed in at least five distinct ways. Here, I will focus solely on the link between the corporate tax cuts, the only permanent feature of the legislation, and American workers’ well-being. While the corporate tax cuts were marketed as benefiting American workers, theory, evidence, and the details of the legislation suggest serious skepticism that the legislation will deliver. If workers were truly the first priority, there are far more direct ways for tax policy to help.
As scored by the Joint Committee on Taxation (JCT), the corporate tax cuts in the 2017 tax legislation total about $650 billion over 10 years. Corporate tax revenues have fallen substantially, from 1.5 percent of gross domestic product (GDP) in 2017 to 1.0 percent of GDP in 2018. What have workers gained from these cuts? So far, very little. While only time will reveal the full effects of the legislation, there are 10 reasons to suspect that any positive effects on workers were vastly overstated.
After decades of increasing income inequality and slow wage growth, the TCJA is a poor response. If future tax legislation truly wants to put workers first, there are easy ways to do that. One good option is to make the earned income tax credit (EITC) equally generous regardless of whether people have children; this would substantially lower taxes for many lower-income workers. At the same time, the child tax credit could be further expanded and made refundable to help low-income families with the cost of raising children. (Delinking the EITC from children would also ease administrative and compliance burdens.) There are good ways to couple these changes with revenue raisers elsewhere in the system, including a long-overdue carbon tax.
Other steps are similarly straightforward: Strengthen rather than weaken health insurance markets, avoid deficit-financed tax cuts during good economic times, and make much-needed long-term investments in infrastructure, education, and research and development. These policies would do a much better job of putting workers first.
Kimberly Clausing is the Thormund Miller and Walter Mintz Professor of Economics at Reed College.
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While the corporate tax cuts were marketed as benefiting American workers, details of the legislation suggest serious skepticism that it will deliver.
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