The US Tax Cut and Jobs Act of 2017 was the Trump administration's first major legislative achievement and its supporters hoped it would have the twin effect of increasing corporate investment as well as boosting both employment figures and wages.
The controversial bill cut the top corporate tax rate from 35 percent to 21 percent and reduced rates for individuals and joint-filers in the top six tax brackets, a change which some experts say could result in more debt and the raising of federal deficits by close to $2 trillion.
Now, more than two years after Trump signed the bill, which Congress passed without any Democratic support, questions linger about whether it resulted in job creation, or if it was a hastily written, politically motivated benefit to corporations and the rich.
Some, such as Nobel Prize-winning professor of economics Joseph Stiglitz, think the cut provided a “$1 trillion sugar rush” to the U.S. economy while making the tax code more complex, rather than hewing to the simplifications which defined previous reform efforts.
Last month, Stiglitz joined Daniel Shaviro, professor of taxation at New York University, and Stephen Eilers, managing partner at Freshfields Bruckhaus Deringer, an international law firm based in London, at a talk about the consequences of the tax cut sponsored by the Richard Paul Richman Center for Business, Law, and Public Policy at Columbia University.
In his opening remarks, moderator Jesse Greene, of the Business School's Executives in Residence program, noted that the Congressional Budget Office projects that nine years from now the law could see debts rise to 92 percent of GDP, from 78 percent today.
“What has happened to the stated goals of the law?,” Greene asked the panel.
Stiglitz began by criticizing the law as a “tax cut for billionaires,” which will have a detrimental effect on Middle America that, over time, will do little to change wage stagnation.
“It is a 70 percent tax increase on those in the middle of the economy,” he said. “If you look at what has happened over the last 40 years, the bottom 90 percent has stagnated; the top 1 percent has done extraordinarily well.”
Stiglitz countered the administration's claim that lowering the corporate tax rate would spur investment resulting in a $4,000 increase in wages for American workers, by citing the Australian parliament's recent decision to maintain its level of taxation for corporations.
“Investment (in the U.S.) has not increased,” he said. “The share of investment of GDP is going down in spite of the fact that the rate of return has gone way up. But where did the money go? It went for share buybacks.”
Eilers, however, said the changes in tax rates has had a positive psychological effect on potential overseas investment in the U.S. and strengthened its competitive position.
“CFOs are looking at the rates, and the U.S. has moved the dial,” Eilers said. “In the last eight to 10 months, there's been the BMW investment in domestic SUV production and the decision by Airbus to go to Alabama.”
While Eilers is encouraged by the administration's willingness to combine tax policy with protectionist tariffs, which he claims has contributed to a “honeypot” effect, drawing competing investors to various sectors of the U.S. economy, he is leery of the Act's potential to balloon deficits.
“If the deficit gets worse, the honeypot is not sustainable,” he said. “But now the bees are flying, and the nearer you get to the honeypot, the more they will sting you.”
Shaviro agreed that the act looks better from abroad than it does domestically and that it addressed genuine problems in the tax code, but he criticized the legislative process involved in writing the bill and noted that the law has an uncertain future.
“It was the least professionally competent major tax legislation in modern U.S. history,” Shaviro said. “The staff did its best, but the process was rushed and secretive; that's not how you should operate when you're dealing with something as complicated as our tax code and our economy.”
To contrast, Shaviro pointed out that the 1986 tax reform bill signed by Ronald Reagan took two years to create, with broad input from both parties and the public.
Shaviro agreed with the other panelists that the tax has built-in instabilities, but he expressed concern that the 2017 law and any subsequent changes to the code would not conform to the conventional partisan swings in tax policy.
“Normally, you would expect, whether you're on the left or right, a pendulum between more progressive legislation and conservative legislation,” he said. “Am I confident we are still in that world? I don't know.”
Stiglitz noted that any changes to the law will start at the ballot box this November.
“It takes political will,” he said. “As an economist, I have to believe that eventually people will come to terms with reality, but even then there's always an interpretive problem -- a narrative about how did you come to be where you are. That's politics.”
View video clips from the discussion here.