cover image: Lessons from the Biggest Business Tax Cut in US History

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Lessons from the Biggest Business Tax Cut in US History

11 Jul 2024

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.
taxation corporate finance other asset pricing public economics international trade and investment monetary economics law and economics economic fluctuations and growth labor studies international finance and macroeconomics productivity, innovation, and entrepreneurship

Authors

Gabriel Chodorow-Reich, Owen M. Zidar, Eric Zwick

Acknowledgements & Disclosure
Chodorow-Reich gratefully acknowledges support from the Ferrante Fund and Chae fund at Harvard University. Zwick gratefully acknowledges financial support from the Booth School of Business at the University of Chicago. Zidar thanks the NSF for support under grant no. 1752431. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
DOI
https://doi.org/10.3386/w32672
Pages
31
Published in
United States of America

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