Support Leading Republicans supported the bill, including President
Donald Trump and Vice President
Mike Pence, and Republicans in Congress, such as: •
Paul Ryan,
Speaker of the United States House of Representatives (R-WI) •
Mitch McConnell,
Majority Leader of the United States Senate (R-KY) •
Kevin McCarthy,
House Majority Leader (R-CA) In the Senate, Republicans "eager for a major legislative achievement after the Affordable Care Act debacle ... have generally been enthusiastic about the tax overhaul." A number of Republican senators who initially expressed trepidation over the bill, including
Ron Johnson of Wisconsin,
Susan Collins of Maine, and
Steve Daines of
Montana, ultimately voted for the Senate bill. The Trump Administration's
Council of Economic Advisors supported the bill, claiming it would have significant economic benefits. President Trump and Treasury Secretary
Steve Mnuchin claimed that the law's tax cuts would pay for themselves. Many Republican supporters of the tax bill characterized it as a simplification of the tax code.
Opposition and then-House Minority Leader
Nancy Pelosi at a press conference opposing the bill in 2017 Democrats opposed the legislation, viewing it as a giveaway to corporations and high earners at the expense of middle class communities. Every House Democrat voted against the bill when it came to the House floor, and 13 Republicans joined them in doing so. Pelosi said the legislation was "designed to plunder the middle class to put into the pockets of the wealthiest 1 percent more money". The 13 House Republicans who voted against the bill were mostly from New York, New Jersey, and California, and several were opposed to the $10,000 cap on the
state and local income tax deduction. Billionaire and former Mayor of New York
Michael Bloomberg called this tax bill an "economically indefensible blunder", arguing that companies would not invest more because of the tax cuts.
Bill Gates and
Warren Buffett also thought that Trump's tax cut would not help businesses. In a
CNBC interview, Buffett said: "I don't need a tax cut in a society with so much inequality". In a letter made public on the November 12, 2017, more than 400millionaires and billionaires (which include
George Soros and
Steven Rockefeller) asked Congress to reject the Republican tax plan. They stated that it would disproportionately benefit the wealthy while adding at least $1.5 trillion to the national debt.
The Economist was also critical of the tax cut: "The expiry of tax cuts for individuals is a ticking time-bomb in the tax code. It will explode just as America approaches a budget crisis, driven by rising spending on health care and pensions for the elderly. This gap will probably eventually be plugged by a combination of tax rises and spending cuts. But by cutting taxes now, Republicans have moved the starting point for any future negotiations".
The Financial Times argued that this bill was "built for
plutocrats" as it would mainly benefit very high income households ("45 per cent of the tax reductions in 2027 would go to households with incomes above $500,000 – fewer than 1 per cent of filers"). The editorial board of
The New York Times vigorously opposed the bill: "This bill is bad enough. No less revolting is the dishonest and sneaky way it was written." Editorial Boards of major
US newspapers including
USA Today,
The Washington Post, the
Los Angeles Times, the
San Francisco Chronicle and
The Boston Globe also opposed the bill.
Minor impact on economic growth Paul Krugman disputed the Administration's primary argument that tax cuts for businesses will stimulate investment and higher wages: • Foreigners own about 35% of U.S. equities, so as much as $700billion of the tax cut will go overseas, as corporate after-tax income will flow to these investors as stock buybacks and dividends. • CEOs indicate that tax cuts are not a big factor in investment decisions. In November 2017, the University of Chicago asked over 40 economists if U.S. GDP would be substantially higher a decade from now, if either the House or Senate bills were enacted, with the following results: 52% either disagreed or strongly disagreed, while 36% were uncertain and only 2% agreed. The
Tax Policy Center estimated that GDP would be 0.3% higher in 2027 under the House bill versus current law, while the University of Pennsylvania Penn Wharton budget model estimates approximately 0.3–0.9% for both the House and Senate bills. The very limited effect estimated is due to the expectation of higher interest rates and trade deficits. These estimates are both contrary to the Administration's claims of 10% increase by 2027 (about 1% per year) and Senator Mitch McConnell's estimate of a 4.1% increase. Federal Reserve Bank of NY President and CEO
William C. Dudley stated in January 2018: "While this legislation will reduce federal revenues by about 1 percent of GDP in both 2018 and 2019, I anticipate the boost to economic growth will be less than that. Most importantly, most of the tax cuts accrue to the corporate sector and to higher-income households that have a relatively low marginal propensity to consume. This suggests that a significant portion of the tax cuts will be saved, not spent." The Trump administration predicted the tax cut would spur corporate capital investment and hiring. One year after enactment of the tax cut, a
National Association for Business Economics survey of corporate economists found that 84% reported their firms had not changed their investment or hiring plans due to the tax cut. Later in 2019, the
Economic Policy Institute analyzed the data on business investment from the federal
Bureau of Economic Analysis and concluded that, "if the TCJA’s corporate rate cuts were working, we would be seeing a permanent rise in investment. Instead, investment growth is cratering." Analysis conducted by
The New York Times in November 2019 found that average business investment was lower after the tax cut than before, and that firms receiving larger tax relief increased investment less than firms receiving smaller tax relief. The analysis also found that since the tax cut firms increased dividends and stock buybacks by nearly three times as much as they increased capital investments.
Limited or no wage impact Corporate executives indicated that raising wages and investment were not priorities should they have additional funds due to a tax cut. A survey conducted by Bank of America-Merrill Lynch of 300 executives of major U.S. corporations asked what they would do with a corporate tax cut. The top three responses were that they would pay down debt, conduct stock buybacks, and conduct mergers. An informal survey of CEOs by Trump advisor
Gary Cohn resulted in a similar response, with few hands raised in response to his request for them to do so if their company would invest more. Former
Clinton cabinet Treasury Secretary
Larry Summers referred to the analysis provided by the Trump administration of its tax proposal as "...some combination of dishonest, incompetent, and absurd." Summers wrote that the Trump administration's "central claim that cutting the corporate tax rate from 35 percent to 20 percent would raise wages by $4,000 per worker" lacked peer-reviewed support and was "absurd on its face." On December 20, 2017, the day the final bill was passed by the House, Wells Fargo, Fifth Third Bancorp and Western Alliance Bancorp announced they would raise the minimum wage of its workers to $15 an hour upon signing of the bill. A number of companies announced bonuses for workers, including AT&T which said it will give a $1,000 bonus to every single one of its 200,000 employees as a result of the Tax Cut bill. Democratic Senator
Chuck Schumer stated that these were the exception to the rule and that AT&T was in litigation with the government over a pending merger. He stated: "There is a reason so few executives have said the tax bill will lead to more jobs, investments, and higher wages—because it will actually lead to share buybacks, corporate bonuses, and dividends." In the immediate aftermath of the passage of the Act, a relatively small number of corporations—many of them involved in mergers disputed by the government or regulatory difficulties—announced pay raises or bonuses to employees, although it is not clear they would not have done so without the tax cut (many companies award raises and bonuses early each year in the normal course of business, after their prior year earnings are known and their new budgets are put in place). About 18 companies in the
S&P did so; when companies paid awards to employees, these were usually a small percentage of corporate savings from the Act. A January 2018 study from the firm
Willis Towers Watson found that 80% of companies were not "considering giving raises at all." Bloomberg reported in March 2018 that an estimated 60% of corporate tax savings were going to shareholders, while 15% was going to employees, based on analysis of 51 S&P 500 companies.
Increases income and wealth inequality The New York Times editorial board explained the tax bill as both consequence and cause of
income and
wealth inequality: "Most Americans know that the Republican tax bill will widen economic inequality by lavishing breaks on corporations and the wealthy while taking benefits away from the poor and the middle class. What many may not realize is that growing inequality helped create the bill in the first place. As a smaller and smaller group of people cornered an ever-larger share of the nation's wealth, so too did they gain an ever-larger share of political power. They became, in effect, kingmakers; the tax bill is a natural consequence of their long effort to bend American politics to serve their interests." The corporate tax rate was 48% in the 1970s and is 21% under the Act. The top individual rate was 70% in the 1970s and is 37% under the Act. Despite these large cuts, incomes for the working class have stagnated and workers now pay a larger share of the pre-tax income in payroll taxes. The share of income going to the top 1% has doubled, from 10% to 20%, since the pre-1980 period, while the share of wealth owned by the top 1% has risen from around 25% to 42%. Despite President Trump promising to address those left behind, the House and Senate bills would increase economic inequality: • Sizable corporate tax cuts would flow mostly to wealthy executives and shareholders; • In 2019, a person in the bottom 10% would average a $50 tax cut, while a person in the top 1% gets a $34,000 tax cut; • Up to 13million persons losing health insurance or subsidies are overwhelmingly in the bottom 30% of the income distribution; • The top 1% receives approximately 70% of the pass-through income, which will be subject to much lower taxes; • Rolling back the estate tax, which only impacted the top 0.2% of estates in 2016, is a $150billion benefit [Note: $83billion in final bill] to the ultra-rich over ten years. • The top 1% of households by wealth own 40% of stocks; the bottom 80% just 7%, even when including indirect ownership through mutual funds. • According to a Gallup survey, 52% of Americans owned some stock in 2016, down from 65% in 2007. In 2027, if the tax cuts are paid for by spending cuts borne evenly by all families, after-tax income would be 3.0% higher for the top 0.1%, 1.5% higher for the top 10%, −0.6% for the middle 40% (30th to 70th percentile) and −2.0% for the bottom 50%.
International tax standards In November 2017, the
OECD reported that the U.S. tax burden was lower in 2016 than the OECD country average, measured as a percentage of GDP: • Overall taxes, including many state and local taxes, were 26.0% GDP in 2016, versus the OECD average of 34.3%. • Income taxes were 8.5% GDP in 2016, versus the OECD average of 8.9%. • Corporate taxes were 2.3% GDP in 2011, versus the OECD average of 3.0% GDP. Despite this, the US corporate tax rate was 35% prior to the passage of the Tax Cuts and Jobs Act, ten percentage points higher than the OECD average of 25%; the TCJA reduced the American corporate tax rate to 21%, four percentage points lower than the OECD average at the time.
International trade issues A potential consequence of the proposed tax reform, specifically lowering business taxes, is that (in theory) the U.S. would be a more attractive place for foreign capital (investment money). This inflow of foreign capital would help fund the surge in investment by corporations, one of the stated goals of the legislation. However, a large inflow of foreign capital would drive up the price of the dollar, making U.S. exports more expensive, thus increasing the
trade deficit. Paul Krugman estimated this could adversely impact up to 2.5million U.S. jobs. However, economists widely reject that reducing the trade deficit is necessarily good for the U.S. economy. Similar concerns were voiced by
China. In response to the Act, German economists called for the German government to enact tax reform and additional subsidies to prevent a loss of jobs and investments to the
United States.
Conflict of interest Fact-checkers such as FactCheck.Org, PolitiFact and
The Washington Posts fact-checker have found that Trump's claims that his economic proposal and tax plan would not benefit wealthy persons like himself were likely false. An analysis by
The New York Times found that if Trump's tax plan had been in place in 2005 (the one recent year in which his tax returns were leaked), he would have saved $11million in taxes. The analysis also found that Trump would save $4.4million on his eventual estate tax bill. A number of Republican congressmen also stood to benefit personally from the pass-through deduction. Most notably, retiring Tennessee Senator Bob Corker was for some time the sole Republican Senator to oppose the tax plan. Corker stated that he would not support a tax plan that would increase the deficit. However, after Arizona Senator
John McCain, who was unable to vote while receiving treatment for brain cancer, Corker changed his vote to "yes" on the final version of the bill after it was confirmed that the pass-through deduction provision from which he stood to benefit was included in it.
Tax complication According to
The New York Times, "economists and tax experts across the political spectrum warn that the proposed system would invite tax avoidance. The more the tax code distinguishes among types of earnings, personal characteristics or economic activities, the greater the incentive to label income artificially, restructure or switch categories in a hunt for lower rates." According to
The Wall Street Journal, the bill's changes to "business and individual taxation could lead to a new era of business reorganization and tax-code gamesmanship with unknown consequences for the economy and federal revenue collection." Republicans justified the tax reform initially as an effort to simplify the tax code. Kevin Brady, the chairman of the House Ways and Means Committee, and Speaker Paul Ryan said in November 2017 that they would simplify the tax code so much that 9 in 10 Americans would be able to file their taxes on a postcard. President Donald Trump said on December 13, 2017, that people would be able to file their taxes "on a single, little, beautiful sheet of paper". The announcements by the House leaders hurt the stock prices of
tax preparers, but upon the release of the actual bill, the stock prices of tax preparers sharply increased. The 400-page House bill was passed two weeks after the legislation was first released, "without a single hearing" held. In the Senate, the final version of the bill did not receive a public hearing, "was largely crafted behind closed doors, and was released just ahead of the final vote." Republicans rewrote major portions of tax bill just hours before the floor vote, making major changes in order to win the votes of several Republican holdouts. Many last-minute changes were handwritten on earlier drafts of the bill. Senate Minority Leader
Charles Schumer (D-NY) proposed giving senators more time to read the legislation, but this motion failed after every Republican voted no.
Bloomberg columnist
Al Hunt classified the legislation as a "slipshod product, legislated with minimal transparency" that was "rushed so fast through a short-circuited lawmaking process" in which many members of Congress who voted in favor of the bill did not fully understand what they had done.
Name of the law The clause establishing the bill's
short title was dropped after Senator
Bernie Sanders (D-VT) filed an objection under the
Byrd Rule to the
Senate Parliamentarian, claiming the section was extraneous. As a result, the name "Tax Cuts and Jobs Act", though widely used, is not contained in the bill, which is officially referred to by its long title, or as Public Law 115-97.
Federal Reserve Federal Reserve officials had indicated earlier in 2017 that aggressive tax cuts could increase the pace of interest rate increases already planned. Higher interest rates make borrowing more expensive, slowing economic growth (GDP), other things equal. The Fed also raises interest rates to help offset the risk of inflation in a growing economy near full employment. However, as the tax plan became clearer and its impact on the economy was judged to be relatively minor, the Fed indicated that a plan to raise interest rates incrementally as many as three times in 2018 would not be changed.
Views of economists While there was no clear consensus among
academic economists as to whether the tax plan would benefit the economy to the degree that
first Trump administration predicted, there was a consensus that it would widen
public deficits and
economic inequality. In a survey conducted by the
University of Chicago's Initiative on Global Markets, 37 out of 38 economists interviewed stated that they thought the Act would cause a rapid increase in the
national debt. The one dissenting economist later changed his mind. Conversely, only one economist (
Stanford's
Darrell Duffie) out of the 38 agreed with the statement: "If the US enacts a tax bill similar to those currently moving through the House and Senate—and assuming no other changes in tax or spending policy—US GDP will be substantially higher a decade from now than under the status quo". Four winners of the
Nobel Prize in Economics have spoken out against the legislation:
Joseph Stiglitz,
Paul Krugman,
Richard Thaler, and
Angus Deaton.
Princeton economist
Alan Blinder, who served as Vice Chair of the
Federal Reserve System from 1994 to 1996, argued, in an article published by
The Wall Street Journal, that "almost everything was wrong" with the Trump Tax Cut and that "it blew a large hole in the
federal deficit". A group of 137 economists signed an open letter expressing support for the bill; the letter was touted by President Trump, House Speaker Paul Ryan and the Senate Finance Committee as support for the legislation among economists; the letter was criticized by left-liberal publications that cited independent research which contradicted some of its claims and alleged that it contained signatories who did not exist. A group of nine economists (largely from the
Reagan and
Bush administrations) wrote a letter which estimated 3 percent growth from the reduction in the corporate tax rate within a decade; the letter was challenged by
Harvard economists
Larry Summers and
Jason Furman (both of whom served in the
Obama administration), and the nine economists appeared to back off from their original claims. According to
The Guardian, thirteen tax law professors from around the US, in a 68-page study, called the law's process "rushed and secretive" that resulted "in deeply flawed legislation".
Political significance In November 2017, Senator
Lindsey Graham (R-SC) said that "financial contributions will stop" flowing to the
Republican Party if tax reform is unable to be enacted. This echoed comments by Representative
Chris Collins (R-NY), who said, "My donors are basically saying 'get it done or don't ever call me again.'" ==Excluded provisions before passage==