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In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office’s (CBO’s) projected rate published in 2017 before the tax cut. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although growth rates cannot indicate the tax cut’s effects on GDP, they tend to rule out very large effects particularly in the short run. Although investment grew significantly, the growth patterns for different types of assets do not appear to be consistent with the direction and size of the supply-side incentive effects one would expect from the tax changes. This potential outcome may raise questions about how much longer-run growth will result from the tax revision.

CBO, in its first baseline update post enactment, initially estimated that the Act would reduce individual income taxes by $65 billion, corporate income taxes by $94 billion, and other taxes by $3 billion, for a total reduction of $163 billion in FY2018. Corporate revenues were about $40 billion less than projected whereas individual revenues were higher, with an overall revenue reduction of about $9 billion. From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%.

Real wages grew more slowly than GDP: at 2.0% (adjusted by the GDP deflator) compared with 2.9% for overall real GDP. Such slower growth has occurred in the past. The real wage rate for production and nonsupervisory workers grew by 1.2%.

Although significant amounts of dividends were repatriated in 2018 compared with previous years, the data do not appear to show a significant increase in investment flows from abroad. While evidence does indicate significant repurchases of shares, either from tax cuts or repatriated revenues, relatively little was directed to paying worker bonuses, which had been announced by some firms.

Although the legislation contained a number of provisions that discouraged inversions (shifting headquarters of U.S. firms abroad), these inversions had apparently already been significantly slowed by regulations adopted in 2014, 2015, and 2016.

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In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office’s (CBO’s) projected rate published in 2017 before the tax cut. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although growth rates cannot indicate the tax cut’s effects on GDP, they tend to rule out very large effects particularly in the short run. Although investment grew significantly, the growth patterns for different types of assets do not appear to be consistent with the direction and size of the supply-side incentive effects one would expect from the tax changes. This potential outcome may raise questions about how much longer-run growth will result from the tax revision.

CBO, in its first baseline update post enactment, initially estimated that the Act would reduce individual income taxes by $65 billion, corporate income taxes by $94 billion, and other taxes by $3 billion, for a total reduction of $163 billion in FY2018. Corporate revenues were about $40 billion less than projected whereas individual revenues were higher, with an overall revenue reduction of about $9 billion. From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%.

Real wages grew more slowly than GDP: at 2.0% (adjusted by the GDP deflator) compared with 2.9% for overall real GDP. Such slower growth has occurred in the past. The real wage rate for production and nonsupervisory workers grew by 1.2%.

Although significant amounts of dividends were repatriated in 2018 compared with previous years, the data do not appear to show a significant increase in investment flows from abroad. While evidence does indicate significant repurchases of shares, either from tax cuts or repatriated revenues, relatively little was directed to paying worker bonuses, which had been announced by some firms.

Although the legislation contained a number of provisions that discouraged inversions (shifting headquarters of U.S. firms abroad), these inversions had apparently already been significantly slowed by regulations adopted in 2014, 2015, and 2016.

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CBO, in its first baseline update post enactment, initially estimated that the Act would reduce individual income taxes by $65 billion, corporate income taxes by $94 billion, and other taxes by $3 billion, for a total reduction of $163 billion in FY2018. Corporate revenues were about $40 billion less than projected whereas individual revenues were higher, with an overall revenue reduction of about $9 billion. From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%....

Although significant amounts of dividends were repatriated in 2018 compared with previous years, the data do not appear to show a significant increase in investment flows from abroad. While evidence does indicate significant repurchases of shares, either from tax cuts or repatriated revenues, relatively little was directed to paying worker bonuses, which had been announced by some firms.

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Overall revenue changes were close to projections, with revenues only $9 billion smaller than projected, due to a $45 billion increase in individual income tax revenues, but a $7 billion decrease in payroll taxes, along with a $40 billion decline in corporate revenues.

As noted above, data on GDP are not consistent with a large growth effect in 2018, and thus the tax cut is unlikely to provide enough growth to significantly offset revenue losses in 2018. Data from FY2018 suggest that the tax cut for corporations may have been larger than the $94 billion CBO projected in its April 2018 baseline. That baseline projected corporate revenues of $243 billion, but actual corporate revenues were $38 billion lower at $205 billion, 16% lower than projected. CBO's January 2019 report on the budget and economic outlook indicated that these lower corporate tax revenues could not be explained by economic conditions and stated that the causes will not be apparent until information from tax returns becomes available over the next two years.18 CBO also expected this decline in revenues to dissipate over time. With little evidence of whether the decline will actually be temporary or permanent, CBO may have relied on the historical tendency of unexplained changes to dissipate over time. It is also possible that estimated revenue losses from the corporate tax changes were too low in their earlier estimates.

The overall revenues were close to those projected as the lower corporate revenues were offset by gains from other taxes: a $45 billion increase in individual income tax revenues and a $7 billion decrease in payroll taxes. These differences, particularly for payroll taxes, are much smaller as a percentage of revenue, and CBO does not indicate any need for an explanation of these changes outside of economic forces.

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The Department of Labor reports that average weekly wages of production and nonsupervisory workers were $742 in 2017 and $766 in 2018.35 Wages, assuming full-time work, increased by $1,248 annually. But this number must account for inflation and growth that would otherwise have occurred regardless of the tax change. The nominal growth rate in wages was 3.2%, but adjusting for the GDP price deflator, real wages increased by 1.2%. This growth is smaller than overall growth in labor compensation and indicates that ordinary workers had very little growth in wage rates.

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During the passage of the tax revision and in the immediate aftermath, some argued that firms would use these funds to pay worker bonuses (as discussed in the previous section on wages). Subsequently, a number of firms announced bonuses, which in some cases they attributed to the tax cut. One organization that tracks these bonuses has reported a total of $4.4 billion.41 With US employment of 157 million, this amount is $28 per worker.42 This amount is 2% to 3% of the corporate tax cut, and a smaller share of repatriated funds.43 It is consistent with what most economists would expect that a small percentage of increased corporate profits or repatriated funds (if any) would be used to compensate workers, as economic theory indicates that firms would pay workers their marginal product, a result of fundamental supply and demand forces.44 The bonus announcements could have reflected a desire to pay bonuses when they would be deducted at 35% rather than 21% (in late 2017 for firms with calendar tax years but in 2018 for firms with different tax years). Worker bonuses could also be a result of a tight labor market and attributed to the tax cut as a public relations move.

Much of these funds, the data indicate, has been used for a record-breaking amount of stock buybacks, with $1 trillion announced by the end of 2018.45 A similar share of repurchases happened in 2004, when a tax holiday allowed firms to voluntarily bring back earnings at a lower rate.46