The document summarizes the key elements and economic impacts of the Tax Cuts and Jobs Act. It finds that the tax cuts will add $1-1.5 trillion to the national debt over 10 years, benefit high-income groups the most, and potentially increase the number of uninsured by 13 million people. While proponents claim it will boost economic growth and job creation, most experts estimate only a small, temporary GDP increase with limited benefits that fade over time. There are also risks that higher debt could crowd out private investment and increase the chances of a fiscal crisis.

1. 1
Tax Cuts and Jobs Act / “Trump Tax Cuts”
Economic, Budgetary, and Distributional Impact
March 2018

2. Tax Cuts and Jobs Act
2
1. Tax cut elements
2. Economic: Jobs and Growth
3. Budgetary: Deficits and Debt
4. Distributional: Income Inequality
5. Healthcare
6. Political

3. Tax Cuts and Jobs Act (TCJA or Tax Act)
Major Provisions
3
Individual (Most Expire 2025)
 Lower individual tax rates
 Higher AMT exemption amounts
 Standard deduction roughly 2x
 Eliminates personal exemption
 Limits State/Local tax deduction to $10k
 Higher child tax credit
 Reduction in mortgage interest
deduction (debt of $750k)
 Repeals ACA individual mandate
 Raises limits on estate tax
 Slows inflation adjustments to brackets
and deductions/exemptions (perm)
Business (Permanent)
 Top corporate rate lowered from 35% to 21%
 Pass-through business (P-ship, S-Corp, LLC)
income deduction 20%
 Repeal corporate AMT
 More expensing of new investments
 Shift from world-wide to territorial tax system
 One-time lower tax on repatriated foreign
earnings (15.5% on cash, 8% on non-cash)
Source: CNN – Jeanne Sahadi “What’s in the GOP’s final tax plan” – December 22, 2017

4. Summary of Tax Act Effects
Economic, Budgetary & Distributional
4
Source: CBO/JCT and NYT
 GDP level (not growth rate) 0.7% higher (About $370/person)
 Adds $1.5 trillion to debt over 10 years, $1.0 trillion after economic feedback
 Employment level 0.6% higher (About 1 million jobs)
 Increases income and wealth inequality (bottom 80% receive 35% of benefit)
 Reduces healthcare coverage by up to 13 million, while increasing costs on the exchanges
 Some corporations increasing pay or bonuses, but fraction of what shareholders receive

5. Tax Cuts and Jobs Act
5
1. Tax cut elements
2. Economic: Jobs and Growth
3. Budgetary: Deficits and Debt
4. Distributional: Income Inequality
5. Healthcare
6. Political

6. The Economy Recovered Around 2014
Real (Inflation Adjusted) GDP per Capita
6
$52,836
Q4 2017
This pattern is similar for many
economic variables, which regained
pre-crisis levels 2013-2014 and have
been setting records since.

7. Real GDP Growth
7FRED is the Federal Reserve Economic Data
2.5
1.92.0
2.72.7
Economy grew about
2% per year during
the Obama era.

8. Forecast: Marginal Increase in Real GDP Growth 2018-2027
8CRFB: “Official Analysis Finds Tax Bill Will Produce Marginal Growth, Cost $1.1 Trillion” January 3, 2018
Administration claims the
tax bill would shift growth
rate up by 0.4% per year
(e.g., from 2.0% per year, to
2.4%.)
Graphic shows 0% - 0.1%
more likely.
Impact likely to be front-
loaded.
GDP expected to be 0.7%
larger on average 2018-
2027 (About $370 / capita)

9. Total Non-Farm Job Creation 2007-2017 (000’s)
Source: Federal Reserve Economic Data
1,148
(3,569)
(5,061)
1,053
2,090 2,151 2,301
3,005
2,712
2,344
2,173
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
 Job creation good, but down since recent 2014 peak
 JCT: Employment forecast to be 0.6% higher on average
from 2018-2027 due to Tax Act
 That is ~1,000,000 jobs using 2017 figure of about
150 million employed
9

10. Effect on GDP
IGM Economics Expert Panel
Source: University of Chicago IGM Panel of
Expert Economists
The panel is over 40 economists at leading
universities, mostly in the U.S.
10

11. Keynes on Fiscal Policy
11
“The boom, not the slump, is the right
time for austerity at the Treasury”
--John Maynard Keynes, 1937
NYT: Paul Krugman ”Keynes was Right” December 2011

12. During a Boom there is Risk of “Crowding Out”
12
Household
Savings
Govt. and
Business
Interest
Rates
When the economy is booming:
Households are borrowing and spending,
but saving less
Government and businesses compete for
scarce savings
This competition bids up interest rates
(Government “crowds out” business)
Higher interest rates encourage more
household saving, moderating the boom.

13. Households Resumed the Borrow & Spend Pattern in 2013
U.S. Change in Household Debt 1989-2016 (% GDP)
Source: Federal Reserve Economic Data
GDP
%

14. How will the Fed React?
Source: Federal Reserve Economic Data
Fed expected to raise interest
rates 3 times in 2018

15. 15
Ten Year Bond Yield % – Two Year Bond Yield % = Spread
Spread moving
towards zero
indicates a flatter
yield curve (i.e.,
the ten year bond
yield is close to
the two year yield)
Note how this
tends to occur
before recessions

16. 16
The Federal Reserve “Balance Sheet”
Fed selling longer-term
bonds on its “balance
sheet” will increase
supply of bonds,
lowering bond price
and raising interest
rates (in theory) for
those bonds.
This should help offset
a narrowing spread
from raising short-term
discount rate

17. Tax Cuts and Jobs Act
17
1. Tax cut elements
2. Economic: Jobs and Growth
3. Budgetary: Deficits and Debt
4. Distributional: Income Inequality
5. Healthcare
6. Political

18. Impact on Annual Budget Deficit & Debt
 Sum of deficits over 10
years (debt) estimated to
be $1.45 trillion higher
than prior law (shown).
 After macro-economic
feedback effects, JCT
estimates $1.0 trillion
debt increase
 Little/no empirical support
for idea that “tax cuts pay
for themselves”
 CBO studies indicate
feedback of 30 cents on
the dollar is optimistic
(i.e., $1 tax cut increases
deficit by $0.70 or more).
18CBO: “Cost Estimate for the Conference Agreement on H.R. 1” – December 15, 2017, vs. June 2017 baseline

19. Forecast: Impact on Debt / Static and Dynamic (Feedback) Scoring
19CRFB: “Official Analysis Finds Tax Bill Will Produce Marginal Growth, Cost $1.1 Trillion” January 3, 2018
CBO/JCT: $1.46 trillion added to
debt, $1.07 trillion after economic
feedback.
+$1.46 static
- $0.39 feedback*
$1.07 dynamic
The tax cut does not pay for itself.
Dynamic scoring incorporates
economic feedback.
*In theory, higher growth from
borrowing and spending generates
additional tax revenue that
partially offsets some of the initial
amount borrowed.

20. 20
If Trump made no
changes, this is
CBO estimate of
debt increase over
a decade; driven
by aging and
healthcare costs.

21. Debt to GDP Ratio
21NYT-Neil Irwin - The Era of Fiscal Austerity is Over-February 2018
Sources: CBO, CRFB
About a 10% GDP
increase by 2026
vs. prior law

22. IGM Economics Expert Panel
Debt to GDP Ratio
22
Source: University of Chicago IGM Panel of
Expert Economists
The panel is over 40 economists at leading
universities, mostly in the U.S.

23. Risks of Higher National Debt
23
Source #1-4: CBO “Federal Debt and the Risk of a Fiscal Crisis” (2010)
1. Rising interest costs would force reductions in government programs
2. Less able to use fiscal policy to respond to economic challenges
3. An increased risk of a sudden fiscal crisis, in which investors demand higher interest rates
4. A growing portion of savings would go towards purchases of government debt, rather than
investments in productive capital goods such as factories and computers, leading to lower output
and incomes than would otherwise occur (i.e., ongoing “crowding out”)
 Republican platform for attacking social safety net (Social Security, Medicare, Medicaid)

24. Tax Cuts and Jobs Act
24
1. Tax cut elements
2. Economic: Jobs and Growth
3. Budgetary: Deficits and Debt
4. Distributional: Income Inequality
5. Healthcare
6. Political

25. Income Inequality (1980-2016)
25
Washington Post: Ingraham-U.S. lawmakers are redistributing income from the poor to the rich, according to
massive new study – December 2017
 Top 1% families captured 52% of
income growth from 2009-2015
versus 91% from 2009-2012.
 Bottom 99% incomes grew by
3.9% from 2014 to 2015, best
annual rate since 1999.
 Higher top income tax rates in
2013 either helped or didn’t hurt
more egalitarian income growth
Source: Saez – Striking it Richer – June 2016

26. CBO: Average Tax Rates Through 2013
Obama
2013
26

27. Share of Federal Revenue Collected by Tax Type, 1967-2016
27
Payroll taxes (paid by all workers) are increasing as a share of collections, while corporate taxes are falling

28. Source Data: CBO and JCT
Tax Cuts and Jobs Act
Distribution of Impact by Income Group (Average $ per Taxpayer)
Average taxpayer in
highlighted group
incurs a net cost ($)
28

29. -4
-3
-2
-1
0
1
2
Below $10k 10-20k 20-30k 30-40k 40-50k 50-75k 75-100k 100-200k 200-500k 500-1,000k $1,000k+
Source Data: Joint Committee on Taxation
Conference Agreement / JCX-68-17 / December 18, 2017
Taxpayer
Income Category ($)
2019
2023
2027
JCT: Tax Cuts and Jobs Act
Change in Average Tax Rates vs. Current Law, by Income Level for Selected Years
Change in
Average
Tax Rate
(Percentage
Points)
29
Slope down to right indicates higher
income groups benefit more
Upward shifting lines indicate benefits
fade (or costs increase) over time

30. Tax Cuts and Jobs Act
Distribution of Benefits by Income Percentile for 2018
Distribution of Benefits in 2018: Q1-Q5 (Total=100%) Distribution of Benefits within Q5 (Total=65%)
1%
5%
11%
18%
65%
Q1 Q2 Q3 Q4 Q5
13% 10% 22% 20%
80-90th 90-95th 95-99th Top 1%
Source Data: Tax Policy Center
Note: Excludes impact of reduced ACA subsidies due to mandate repeal
Under
$25,000
$25,000-
$48,600
$48,600-
86,100
$86,100-
$149,400
Over
$149,400
$149,400-
216,800
$216,800-
307,900
$307,900-
732,800
Over
$732,800
30
Summary
 Top 1% receive 20% of the benefit
 Bottom 60% receive 17% of the benefit
 Bottom 80% receive 35% of the benefit
 Excludes effect of ACA subsidy reduction
 Excludes effect of other spending cuts

31. Impact on After-Tax Income (2027)
31
If the tax cut is financed by spending reductions that fall equally on each
household (in reality such cuts would disproportionally fall on the poor)
NYT-David Leonhardt-A Tax Plan to Turbocharge Inequality, in Three Charts – December 2017

32. Net Tax Benefits by Type of Taxpayer (Senate Version)
32
 About one-third of U.S. stock is owned by foreigners, so a portion of share buybacks and dividends flows overseas
 20-25% of corporate tax cuts flow to workers, lower in the short-run
 The top 1% owns 40% of stocks; the bottom 80% just 7% of stocks
 Estate taxes were paid by the top 0.2% of estates in 2016
Sources: CBO, NYT, Vox

33. Changes in Real Corporate Profits (After-Tax) Not Correlated with Household Income
“We’ve seen a large increase
in corporate profits since
2000, increasing faster during
the Great Recession, yet this
hasn’t trickled down to
regular people.
Wages are nearly flat since
2000, and the recovery from
the recession featured the
weakest business investment
of the postwar period.
This is a genuine shift in the
organization of the economy,
one economists are still
struggling to understand.”
--Mike Konczal, Roosevelt Institute
VOX - Mike Konczal – Republicans are Weaponizing the Tax Code – November 16, 2017
33
Corporate Profits
Wages

34. What Will Companies Do with Their Tax Savings?
34As of January 2018

35. What Will Companies Do with Their Tax Savings?
35
As of March 2018: About 60% of corporate savings are going to shareholders; 15% for employees.
Bloomberg: “Five Charts
that Show How
Companies are Spending
Their Tax Breaks”
(March 5, 2018)

36. Apple Gave Workers Less than 1% of What it Gave Shareholders
36
Source data: NYT / AppleInsider.com

37. Stock Market Ownership
37NPR: While Trump touts stock market, many Americans are left out of the conversation (March 2017)
 About 50% of Americans own stock, directly or indirectly through mutual funds
 About 33% of stock is owned by foreigners
81%
11%
8%

38. Tax Cuts and Jobs Act
38
1. Tax cut elements
2. Economic: Jobs and Growth
3. Budgetary: Deficits and Debt
4. Distributional: Income Inequality
5. Healthcare
6. Political

39. Gallup: Percentage Without Health Insurance
39
 The uninsured rate rose from 10.9% in November 2016 to 12.2% in December 2017
 Number uninsured rose from about 28 million in 2016 to 31 million in 2017 (+3.2m or 11%)
 Increased mortality is about 3.2 million / 800 = 4,000 avoidable deaths per year
http://news.gallup.com/poll/225383/uninsured-rate-steady-fourth-quarter-2017.aspx

40. Source Data: NYT, CBO, Kaiser Family Foundation
Tax Cuts and Jobs Act (TCJA)
Number Without Health Insurance Under Age 65 (Millions)
Additional Uninsured
Due to TCJA
CBO Baseline
Uninsured28 30 31 31 31 31 31 31 31
4
7
12 12 12 12 13
2017 2018 2019 2020 2021 2022 2023 2024 2025
40
13 million additional uninsured represents about 16,250 avoidable deaths/year
Eliminating mandate and cost-sharing subsidies* added about 30-40% to pre-subsidy exchange costs
*Separate from tax law

41. Tax Cuts and Jobs Act
41
1. Tax cut elements
2. Economic: Jobs and Growth
3. Budgetary: Deficits and Debt
4. Distributional: Income Inequality
5. Political

42. 42
Polling
NYT – Casselman and Tankersley - Tax Overhaul Gains Public Support, Buoying Republicans (February 19, 2018)

43. 43
President Trump Popularity (Multiple Polls Aggregated)
Source: FiveThirtyEight

44. 44
President Trump Approval – By Party
Source: Gallup
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
Republicans
Independents
Democrats
Recent improvement: Tax cut passage, bonus
announcements, immigrants in the news

45. 45
Generic Ballot: Who is Winning the Race for Congress?
Source: FiveThirtyEight
Democrats require about a
7 point difference or better
to win the House, due to
urban/rural split and
gerrymandering.
Democrats are defending
far more seats in the
Senate.

46. 46
Republican Claim Democratic Response
I support lower taxes and smaller
government.
Do a higher debt, making the rich even richer, and fewer people with
health insurance bother you? That’s what the Tax Act did.
I’m getting more money in my paycheck
(higher-income person)
It’s a “sugar high.” You won’t know what the real impact is until you file
your 2018 return, especially if you live in a high-tax state. The state and
local tax deduction is capped at $10,000. Individual cuts expire.
I’m getting more money in my paycheck
(lower-income person)
If you make less than $40,000, you’ll probably incur costs by 2021; less
than $75,000 by 2027. And that’s assuming Medicaid and other
government programs don’t get cut. Individual cuts expire.
All this spending is driving government
debt through the roof.
Actually, the tax cut will add $1.0 trillion or more to the debt, on top of
the $11 trillion expected to be added already, over a decade.
“The Establishment” is the problem. It made “The Establishment” stronger. Corporations got their taxes cut
by one-third and can use that money to buy more politicians and pay
rich shareholders. The top 1% gets 20% of the benefit.
Obamacare is a disaster. People
shouldn’t have to buy insurance.
Obamacare gave 20 million affordable health insurance, paid for by tax
hikes on the top 5%. The Tax Act may cost 13 million people their
insurance. Don’t freeloaders bother you? The rest of us pay more
when healthy, young people opt out of insurance.