The 2017 federal tax cuts did little to boost the economy, according to the bipartisan Congressional Research Service (CRS). In analyzing the effects of the 2017 Tax Cuts and Jobs Act, the CRS concluded that "the data appear to indicate that not enough growth occurred in the first year to cause the tax cut to pay for itself." Instead, on the "whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy." The CRS observed that a 6.7% increase in Gross Domestic Product (GDP) was needed to offset the revenue loss caused by the tax cuts. However, a combination of projections and observed effects for 2018 suggests growth of 0.3% of GDP or less, only 5% or less of the growth needed to fully offset the reduction of tax collections. The CRS further observed that tax collections from individuals increased by $45 billion, while collections from corporations dropped by $40 billion. The CRS also concluded that the tax cuts did little to increase wages. These findings by the CRS confirm earlier predictions about the growth effects of tax cuts, as discussed here two years ago.
Many non-partisan studies find no support for the argument that tax cuts spur economic growth. In 2012, the Congressional Research Service determined that the available data "suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution." The study noted that the "share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession." The Congressional Research Service is a legislative branch agency within the Library of Congress, and works exclusively for the United States Congress. The Services provides policy and legal analysis to committees and members of both the House and Senate, regardless of party affiliation. The cited study was withdrawn after partisan protests, but may still be found here on the website of the Democratic Policy and Communications Center.
In May 2017, the University of Chicago Booth School of Business polled 42 economists, and 72 percent agreed that tax reform usually results in a fall in tax revenue as a share of gross domestic product. In a preliminary analysis of the current Administration/Republican leadership tax reform proposal, the Tax Policy Center estimated that the proposed plan will reduce federal revenue by $2.4 trillion over its first ten years. According to the Center, in 2018, the average tax bill for all income groups will decline. However, the Center finds that taxpayers in the bottom 95% will see their after-tax incomes increase between half a percent and just over one percent on average. Individuals in the top 1% percent, generally with incomes above $730,000, wind up with the greatest benefit, as their after-tax incomes are estimated to increase an average of 8.5%.
Almost 6 million corporations filed tax returns in 2013, the most recent year analyzed by the Internal Revenue Service. Corporations paid approximately $293 billion in taxes in 2013. U.S. corporations reported $30.2 trillion in total receipts in 2013, and held total assets of $88 trillion. Of the almost 6 million corporations filing returns, approximately 4.3 million were passthrough entities. These entities pay little or no Federal income tax at the corporate level. Instead, they are required to pass any profits or losses to their shareholders, where they are taxed at the individual rate. Notably, .06 percent of the corporations filing returns had total assets of $2.5 billion or more, but these few corporations held 81.3 percent of the total assets of all U.S. corporations. In 2016, corporations were taxed at the rates in the accompanying table, taken from the instructions for 2016 Form 1120.
Business taxpayers account for only 10 percent of the country's tax collections, according to the Internal Revenue Service. In 2016, the IRS collected more than $3.3 trillion in taxes. Yet, the IRS only collected about $346 billion from businesses, or roughly 10 percent. Individual taxpayers contributed about $1.8 trillion, about 55 percent of the total collected.
The tax initiative President Trump's administration recently announced likely will increase the federal debt and benefit the wealthy, without any long-term benefit to the economy. The President's tax initiative is similar to the proposal he advanced during the presidential campaign. The independent Tax Policy Center analyzed the campaign plan, and determined that it will increase the federal deficit by $7 trillion over the first 10 years, and that by 2024, gross domestic product will be less than expected without the tax revision. Also, the administration's plan will significantly benefit higher income taxpayers. Those in the top .1 percent of taxpayers could expect an average savings of $1.1 million, or 14 percent of their after tax income. Taxpayers in the middle fifth of households will only see a tax savings of $1,010, or only 1.8 percent of their after tax income. Moreover, the respected Brookings Institution studied the country's historical tax policies, including tax cuts and increases, and found no compelling evidence of economic growth through tax cuts.
Most Americans paid marginal tax rates of 15 percent or less in 2014, according to information from the Internal Revenue Service. The IRS determined that 71 percent of Americans paid a marginal tax rate of 15 percent or less. The IRS defines the marginal tax rate as "the highest statutory rate on taxable income." CNBC explains the concept of marginal tax rate here. Only .6 percent of Americans paid the highest marginal tax rate of 39.6 percent in 2014.
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