Did the changing in Investment expenditures help Real GDP grow after the tax cuts of 2017 were passed?
The 2017 tax revision, P.L. 115-97, often referred to as the Tax Cuts and Jobs Act, and referred to subsequently as the Act, substantially revised the U.S. tax system. The Act permanently reduced the corporate tax rate to 21%, made a number of revisions in business tax deductions (including limits on interest deductions), and provided a major revision in the international tax rules.
It also substantially revised individual income taxes, including an increase in the standard deduction and child credit largely offset by eliminating personal exemptions, along with rate cuts, limits on itemized deductions (primarily a dollar cap on the state and local tax deduction), and a 20% deduction for pass-through businesses (businesses taxed under the individual rather than the corporate tax, such as partnerships).
These individual provisions are temporary and are schedule to expire after 2025. The Act also adopted temporary provisions allowing the immediate deduction for equipment investment. Also, an increase in the exemption for estate and gift taxes. The Joint Committee on Taxation (JCT) estimated that these changes would reduce tax revenue by $1.5 trillion over 10 years.
In 2018, gross domestic product (GDP) grew at 2.9%. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although growth rates cannot indicate the tax cut’s effects on GDP. They tend to rule out very large effects particularly in the short run.
Although investment grew significantly, the growth patterns for different types of assets do not appear to be consistent with the direction and size of the supply-side incentive effects one would expect from the tax changes. This potential outcome may raise questions about how much longer-run growth will result from the tax revision.
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