Lessons from the Biggest Business Tax Cut in US History

Gabriel Chodorow-Reich, Owen Zidar and Eric Zwick

No 32672, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We assess the business provisions of the 2017 Tax Cuts and Jobs Act, the biggest corporate tax cut in US history. We draw five lessons. First, corporate tax revenue fell by 40 percent due to the lower rate and more generous expensing. Second, firms with larger declines in their effective tax wedge increased investment relatively more. In aggregate, we suggest a loose consensus from the literature that total tangible corporate investment increased by 11 percent. Third, the business tax provisions increased economic growth and wages by less than advertised by the Act’s proponents, with long-run GDP higher by less than 1% and labor income by less than $1,000 per employee. Fourth, provisions that increase foreign investment by US-based multinationals also boost their domestic operations. Fifth, some of the expired and expiring provisions, such as accelerated depreciation, generate more investment per dollar of tax revenue than others.

JEL-codes: H25 H32 K34 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-pbe and nep-pub
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Published as Gabriel Chodorow-Reich & Owen Zidar & Eric Zwick, 2024. "Lessons from the Biggest Business Tax Cut in US History," Journal of Economic Perspectives, vol 38(3), pages 61-88.

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