Republican tax cuts benefited working families and US economy

Six years after the 2017 tax cuts went into effect, the record shows that the law boosted investment and economic growth and provided significant benefits to America’s working families. Yet the Biden administration has opposed the tax cuts from the start, offering up a constant stream of misleading and incorrect attacks on them.

Most recently, Treasury Secretary Janet Yellen attacked the tax cuts, falsely claiming that they only benefited large corporations and the rich and failed to increase investment or help the middle class. None of these statements is correct.

An analysis by the nonpartisan congressional Joint Committee on Taxation shows that more than three-quarters of the tax cuts went to individual taxpayers, with less than a quarter going to corporations. Rather than helping just the rich, 77% of the individual tax cuts went to taxpayers earning less than $500,000, and more than half went to those earning less than $200,000, the Joint Committee shows. Families earning under $100,000 received an average tax cut of 16%.

According to the House Ways and Means Committee, the tax cuts boosted workers’ real wages and economic growth in the two years after the enactment before the shutdowns. Wages increased 4.9%, the fastest growth in real wages in two decades. Real median income rose by $5,000, a bigger income gain in two years than in the prior eight years combined. 

For corporations, the corporate rate cut reduced one of the highest tax rates in the world to a much more competitive rate. What’s more, 73% of the static cost of the rate cut was paid for by other corporate tax increases and did not add to the deficit, according to the Joint Committee. 

Without the rate cut, the combined federal-state tax rate on U.S. companies would be nearly 40%, the highest rate in the world. The Biden proposal to raise the rate to 28% would result in a combined rate of 32.8%, higher than every other Organization for Economic Cooperation and Development country except Columbia. Why would Yellen support a higher rate? Raising the corporate rate to these levels would harm the U.S. economy and the middle class, slowing economic growth, reducing wages, and increasing prices. 

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A detailed economic study produced by the National Bureau of Economic Research found that the corporate rate cut resulted in a substantial boost in business investment and other economic benefits. The rate cut increased domestic capital investment by 20% in the two years after the law went into effect. Over the long run, the lower rate leads to increased productivity, higher real wages, and faster economic growth.

The Biden administration has spent the last three years pushing Congress to raise the corporate tax rate to one of the highest levels in the world. Yellen should be thankful that Congress has rejected this harmful tax increase, which almost certainly would have destroyed any hope of a soft landing and pushed the economy into a recession. 

Bruce Thompson was a Senate aide, assistant secretary of treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.