Wall Street Journal op-ed: Tax Reform Has Delivered for Workers, by Gary D. Cohn & Kevin Hassett:
It’s been two years since President Trump signed the Tax Cuts and Jobs Act into law. To the delight of supply-siders, the law contained significant marginal tax rate reductions for individuals and corporations. At the time there was lively debate concerning the likely economic impact of the bill, with opponents pointing to analyses that found little effect from the rate reductions. At the White House, where we worked at the time, we produced analyses that suggested economic growth would surge. On the second anniversary of the TCJA, the numbers are in, and our projections have been vindicated.
The view that the tax cuts would jump-start the economy was based on abundant economic literature examining how tax policy affects decision-making by businesses and individuals. On the corporate side, the tax cut reduced the cost of installing new plant and machinery by about 10%, suggesting that capital spending would jump by the same amount. This would increase the amount of capital per worker and drive up productivity and wages. President Trump emphasized the last point repeatedly, arguing that family incomes would increase by about $4,000 in three to five years, with blue-collar workers benefiting disproportionately.
This predicted increase in capital has materialized, and has translated into additional economic growth. In 2017 our calculations suggested gross domestic product growth would accelerate in response to higher capital spending, with the contribution of nonresidential fixed investment to real GDP growth rising to between 0.8% and 1% in 2018. The contribution of this type of investment to economic growth from the first quarter of 2018 to the fourth quarter of 2018 was right on target, at 0.8%. ...
This extra capital improved productivity and wages and, as expected, did so especially for those in lower-paying jobs. ...
All of this is a great victory for the American people—and for the latest economics literature. It is therefore disappointing to see Democratic presidential candidates, devoid of alternative explanations for the surging economy, calling for the reversal of the tax cuts while asserting that the TCJA benefited only the wealthy. The data clearly prove otherwise.
Supply-side economists have long argued that the best way to help lower-income Americans is to create a system in which they have more disposable income by cutting tax rates and creating incentives for more capital investment in American businesses and workers. The 2017 tax reform and the data that continue to come in demonstrate decisively that this approach works.