Four years ago this month, the Tax Cuts and Jobs Act went into effect.
Although the pandemic shutdowns disrupted the economy two years later, it is clear that the 2017 tax law has been a major success for the economy. The law reduced tax rates for workers and businesses, which boosted the economy in 2018 and 2019. It also put people in a better situation to handle the financial hardships that came with the pandemic.
The law lowered the corporate tax rate from one of the highest in the world to a more competitive rate of 21%. This put U.S. businesses on a more level playing field with our global competitors and gave companies the means and the incentive to increase capital investment, expand jobs and wages, and compete around the world. The results are clear: In the two years after the tax cuts went into effect, the economy boomed, with wages, investment, and jobs all increasing.
Real wages grew 4.9%, the fastest two-year growth rate in 20 years. Real median wages increased $4,400 in 2019, the largest one-year increase in U.S. history. The unemployment rate fell to 3.5%, the lowest level in 50 years, and the poverty rate fell to 10.5%, the lowest level ever. Sadly, the economy today still has 3.6 million fewer jobs than it did in early 2020 before the pandemic began.
Making matters worse, President Joe Biden wants to raise the corporate tax rate back to the highest rate in the world, even though corporate tax revenues are soaring to record high levels. Last year, corporate tax receipts increased 75% to $372 billion, the largest amount ever collected. In the first quarter of fiscal year 2022, corporate tax revenue rose 44%, on track for another record high corporate tax level.
Biden should learn from his predecessor’s example: A low-tax economy is a successful one.
Bruce Thompson was a U.S. Senate aide, the assistant secretary of the treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.
