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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.
As others in this series have noted, it’s difficult to know the Tax Cuts and Jobs Act’s (TCJA) true economic impact. Every major tax scoring organization, including the Congressional Budget Office, estimated that the TCJA would be pro-growth; our debate is about magnitude and beneficiaries. How much growth will the TCJA generate, how quickly will it come, and to whom will it accrue?
The demand-side response should have happened quickly, but its impacts are unclear because the president’s trade war is clouding the economic picture. It’s too early to know whether the law’s supply-side impacts have worked. Lowering the cost of capital, through full expensing and cuts to the corporate income tax rate, induces capital investment, but those investments take time. It takes time to plan, obtain the necessary permits, put the capital in place, and ramp up additional production. Those steps are still likely underway, making it hard to see whether the results stand up to initial projections.
Rightly or wrongly, federal lawmakers chose this path. (And for disclosure, I think it was the right decision.) But part of the problem is that the rhetoric on both sides was exaggerated, so it’s easy to claim some of the more outlandish results haven’t happened. Billions of keystrokes and millions of words later, we still do not know the full impact of the Tax Cuts and Jobs Act. Economists will spend the next phase of our careers arguing about the TCJA’s impact.
The more interesting question at this junction is where do we go from here? For all the political rhetoric about TCJA repeal, it won’t happen. Repealing the law means raising taxes on low- and middle-income individuals, something neither political party wants. A score from the Joint Committee on Taxation detailing those tax increases would be a death knell to any repeal attempt.
Instead of repeal, the most realistic conversation is about modifications to the TCJA’s structure. These ideas need not be partisan, but any tax reform package over the next several years should revisit these five provisions.
Several of these changes would reduce revenue, but reworking Section 199A and further limits to the interest deduction would help offset revenue losses. And there are still plenty of other ways left to further broaden the tax base to finance reforms that reduce tax burdens.
These changes need not be partisan. Some already have bipartisan support. As we wait for the economic dust to settle, we should begin to look forward to the next chapter in federal tax debates.
Nicole Kaeding is an economist and vice president of policy promotion at the National Taxpayers Union Foundation.
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It’s difficult to know the TCJA’s true economic impact. How much growth will it generate, how quickly will it come, and to whom will it accrue?
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