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The GOP tax law’s lopsided giveaway to corporations, explained in one sentence

Congress’s official think tank finds the Republican tax cuts helped corporations, not workers.

Dylan Scott covers health care for Vox. He has reported on health policy for more than 10 years, writing for Governing magazine, Talking Points Memo and STAT before joining Vox in 2017.

A new Congressional Research Service report shows the 2017 Republican tax law had a very muted impact on overall economic growth. Rather, the main consequence was that real tax rates for corporations fell by nearly half while individual income taxes barely budged.

The law, which was the GOP’s proudest legislative accomplishment during the party’s two years of total control of Washington, has somehow been all but forgotten. Ignored by its squeamish supporters unsure how to sell a gigantic corporate tax cut to normal people and mostly left to rot by Democrats who see more value in hitting the GOP over health care or other issues, it’s remarkably anonymous major legislation from a self-promoter like Donald Trump.

But maybe that shouldn’t surprise us. If there was any remaining doubt that the Republican tax law was a lopsided giveaway to the corporate sector while offering negligible benefits for American workers, these findings should quell it. Here is the key sentence from CRS:

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%.

Otherwise, GDP growth was level with pre-tax cut projections. Wage growth was marginal and slower than GDP. And while companies did use their windfall from the tax cut, as Vox’s Emily Stewart has been covering, “relatively little was directed to paying worker bonuses,” according to CRS.

It’s difficult to overstate just how weak the tax law’s influence was. Investments in US businesses did not seem to respond at all to the law’s provisions.

“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,” the CRS researchers said. “This potential outcome may raise questions about how much longer-run growth will result from the tax revision.”

It is more an indictment of the staid nature of the American tax code than a credit to Republicans that the 2017 law still is the most significant rewrite of the tax statute in a generation. It appears the GOP squandered — or exploited — that opportunity to write a plan that primarily put more money in corporate coffers.

Why the GOP tax law will be a disaster for income inequality

The tax law’s most enduring feature is a $1 trillion permanent corporate tax cut. It also slashed tax rates for people making more than $1 million and for pass-through companies disproportionately used by the wealthy, and it rolled back the estate tax on wealthy heirs and heiresses.

While the tax law also nearly doubled the standard deduction and expanded the child tax credit, which should help many lower-income families, independent analyses have consistently found that the bill would cut taxes more for people with higher incomes than for people lower on the economic ladder.

That trendline didn’t improve as Republicans tinkered with their tax plan. Ernie Tedeschi, a former Treasury economist under President Obama, ran the numbers and found that the final tax plan Republicans passed was actually even more tilted toward people making six figures or more than its predecessors.

Ernie Tedeschi
Ernie Tedeschi

That’s in the short term. Almost everybody was expected to get a tax cut, though people with higher incomes would keep more of their money.

But in the longer term, unless the individual tax cuts are extended, almost all of the bill’s gains will accrue to the richest people. (The individual cuts were set to expire in 2025 to comply with the Senate budget rules; Republicans pledged that they will be reauthorized.)

The Tax Policy Center found that 83 percent of the tax cuts in 2027 would go to the top 1 percent, as Vox’s Dylan Matthews covered.

Tax Policy Center

When I surveyed economists last year, they unanimously agreed that the GOP tax overhaul would likely make income inequality worse.

“The bill is investing heavily in the wealthy and their children — by boosting the value of their stock portfolios, creating new loopholes for them to avoid tax on their labor income, and cutting taxes on massive inheritances,” Lily Batchelder, a New York University professor who worked as an economist under President Barack Obama, told me of earlier versions.

“At the same time, it leaves low- and middle-income workers with even fewer resources to invest in their children, and increases the number of Americans without health insurance.”

Or as William Gale, co-director of the Tax Policy Center who served as a senior economist under President George H.W. Bush, put it succinctly then: “It exacerbates preexisting and longstanding trends, rather than aiming to partially compensate for them.”

If anything, that only become more true once Republicans finalized the details — and we’re starting to see that story play out in the real world.

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