Particularly amid the economic difficulties brought on by President Trump’s tariffs, there’s growing urgency within the Republican Party to mitigate the tariff damage with an extension of the 2017 Tax Cuts and Jobs Act (TCJA). Unknown is why. The tax cuts were Keynesian in design, hence not economically stimulative.
Evidence supporting the above claim about the “Trump tax cuts” can be found in commentary from Republicans calling for the TCJA’s extension. Writing at RealClearMarkets last August, Sen. Mike Crapo wrote that “The majority of TCJA’s benefits accrued to working middle class families, who on average received a tax cut ranging from $1,500 to $3,000.” Defending the TCJA in a 2023 letter-to-the-editor at the Wall Street Journal, Phil Gramm and Mike Solon cited analysis from the Joint Committee on Taxation which that the 2017 tax cuts “made the world’s most progressive tax system even more progressive.” From Crapo, Gramm and Solon it’s easy to see that middle earners got tax cuts in 2017, and those tax cuts were largely paid for by high earners.
No doubt some will point to the provision in the TCJA that lowered the top tax rate from 39 percent to 37 percent, but the latter wasn’t nearly enough to make up for the substantial tax increases shouldered by the rich in the form of a reduction in the deductibility of state and local taxes (SALT). And that’s only part of the tax-hike story within the TCJA.
As is well known, the top 10 percent of U.S. earners own roughly 88 percent of public equities. Consider the previous statistic while contemplating the TCJA’s much vaunted lowering of the corporate tax rate from 35 to 21 percent. It all sounded good at first glance, but the reduced rate was “paid for” with a one-time 15.5 percent tax levied on U.S. corporations with liquid foreign assets.
About the trillions in liquid foreign assets that faced a 15.5 tax, the expressed reason for this taxed repatriation of funds was to get the money back in the U.S., but as logic dictates, the money was likely already in the U.S. since money generally goes where it’s treated well. The only difference was that corporations suddenly faced a substantial tax on their foreign holdings, but for the simple truth that corporations as taxpaying entities are a fiction. Shareholders pay corporate taxes, which means the rich were hit again by the TCJA. Which is powerful evidence of the tax bill’s Keynesian orientation.
Taking noting away from across-the-board tax cuts that lower the burden for everyone, the fruits of tax cuts for middle earners excite Keynesian economists focused on consumption. And the TCJA performed admirably in that regard.
At the same time, those with a classical or supply side view of economics understand that economic growth is instigated by investment, and the rich by virtue of being rich have the unspent funds to invest. In other words, a tax cut for them accrues to the very capital formation that drives economic growth.
The only problem is that the TCJA, by the admission of Republican supporters of same, raised taxation on the very individuals most capable of putting wealth to work. It’s worth thinking about. The TCJA is once again seen as essential to the health of a U.S. economy that’s gone a little off track. Except that there’s little growth to be had in its extension, as Republicans have unwittingly explained.
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