I’m very critical of bad policies we got during the Trump years, most notably profligacy and protectionism.
But I shower praise on the good policies, such as the 2017 tax legislation (especially the lower corporate tax rate and the curtailing of the state and local tax deduction).
Today, we’re going to focus on the positive.
I’ve already written several columns about the benefits of Trump’s corporate tax reforms.
There’s now even more evidence to share, thanks to new academic research by Gabriel Chodorow-Reich from Harvard, Matthew Smith from the Treasury Department, Owen Zidar from Princeton, and Eric Zwick from the University of Chicago.
Here’s the most important finding.
The authors have a jargon filled explanation of their results.
This paper combines administrative tax data and a model of global investment behavior to evaluate the investment and firm valuation effects of the Tax Cuts and Jobs Act (TCJA) of 2017, the largest corporate tax reduction in the history of the United States. …the TCJA caused domestic investment of firms with the mean tax change to increase by roughly 20% relative to firms experiencing no tax change. …Figure 4 shows means of investment growth for different quantiles of the composite domestic tax term Γˆ−τˆ (“binned” scatter plots). For domestic-only firms plotted in Panel A, this composite tax term exactly comports with economic theory. The tight upward slope reveals a positive investment elasticity to taxation around TCJA. For multinational firms plotted in Panel B, our theory no longer dictates a single elasticity to Γˆ and τˆ. Nonetheless, the upward slope indicates a positive investment elasticity in this sample.
When citing academic research, I usually try to translate the jargon so that normal people can understand the findings.
Fortunately, I don’t have to do that because William McBride and Alex Durante of the Tax Foundation already stepped up to the plate. Here is their simplified explanation of the research.
A new detailed and thorough study from economists associated with the National Bureau of Economic Research and the Treasury Department finds the reforms substantially raised U.S. capital investment and boosted economic growth. …Their ultimate result is an estimate that the U.S. domestic corporate capital stock will grow 7.4 percent over the long run as a result of the law. Most of the growth in investment and the capital stock is predicted to occur within 10 years, and nearly all of it in 15 years. As the capital stock grows, so do worker productivity and wages. The study estimates a 0.9 percent increase in real wages over the long run. …The study’s estimated impacts on domestic investment are also largely consistent with a long history of empirical research, indicating corporate tax rate reductions and expensing boost domestic investment, wages, and economic growth.
None of this should come as a surprise to people who read this primer or watched this video.
Sadly, Biden wants to reverse this progress because of class-warfare ideology.
