On CRS’ “Preliminary Observations,” re: the 2017 Tax Revision

Perhaps easily missed due to its release on the eve of the Memorial Day Holiday weekend, the Congressional Research Service (the “CRS”) — a legislative branch agency “charged with providing the United States Congress non-partisan advice on issues that may come before Congress” – on May 22 issued its Report No. R45736, “The Economic Effects of the 2017 Tax Revision: Preliminary Observations.” In its Report Summary, the CRS indicates as follows regarding the 2017 Tax Cuts and Jobs Act taking effect January 1, 2018 (the “Act”):

“On the whole, the growth effects [of the Act] tend to show a relatively small (if any) first-year effect on the economy … [T]he growth patterns for different types of assets … may raise questions about how much longer-run growth will result from the tax revision.”

“From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2% [my emphasis].”

“While evidence does indicate significant repurchases [by corporations] of [their own] shares, either from tax cuts or repatriated revenues, relatively little [of the cash corporations received from the cuts or revenues] was directed to paying worker bonuses ….”

In the text of the Report itself, the CRS states:

“[T]he combination of projections and observed effects for 2018 suggests a feedback effect of … 5% or less of the growth needed to fully offset the revenue loss from the Act.”

“[T]he data indicate little growth in consumption in 2018. Much of the tax cut was directed at businesses and higher-income individuals who are less likely to spend. Fiscal stimulus is limited in an economy that is at or near full employment [My emphasis].”

“Much of these funds [received by corporations from the tax cuts and repatriated revenues], the data indicate, has been used for a record-breaking amount of stock buybacks, with $1 trillion announced by the end of 2018.”

Perhaps the only remarkable aspect of these preliminary findings … is that they were so widely predicted beforehand. A link to the pdf of the CRS Report is included below for those that wish to dig in more deeply.


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