The Reality Behind President Trump’s 2017 Tax Cuts: Insights from Economist Elena Patel
In 2017, the Tax Cuts and Jobs Act (TCJA) promised to be a game-changer for the U.S. economy. Spearheaded by President Donald Trump, it slashed corporate tax rates, offered relief to small businesses, and lowered individual tax rates. But as these cuts approach their expiration, experts like Dr. Elena Patel, an economist at the University of Utah, are analyzing whether the promises made back then were fulfilled.
Corporate Tax Cuts: “Rocket Fuel” That Never Launched
One of the most significant changes under the TCJA was the reduction in corporate tax rates from 35% to 21%. President Trump touted this as “rocket fuel for the economy,” with the idea that it would boost corporate investment and, in turn, economic growth.But in an interview with NPR’s Ayesha Rascoe, Patel highlighted a critical complication: “The pandemic fundamentally altered investment in the U.S. in a way that’s really hard for us to separate from anything that might have come from the Tax Cuts and Jobs Act.” While some firms saw marginal increases in investment, she noted there’s no evidence of an overall boost to aggregate investment. Instead, the TCJA merely shifted which firms invested without changing the total amount.
Small Business Owners: Uneven Benefits
The TCJA halved tax rates for small businesses, reducing them from 40% to 20%. On the surface, this seems like a clear win for entrepreneurs. However, Patel reveals a more nuanced reality.“We know small business owners got a tax cut, but it wasn’t evenly distributed,” she explains. Wealthier business owners reaped the most substantial rewards, while the expected benefits, such as increased employment or higher wages, failed to materialize.
Individual Taxpayers: Who Benefited Most?
The TCJA also promised relief for individual taxpayers. Patel acknowledges that taxes dropped across the board but emphasized that the benefits were unevenly distributed.“At the top of the income distribution, tax savings were as much as $250,000, compared to just $70 for the lowest quintile,” she says.A bright spot was the doubling of the standard deduction. Patel praised this change for simplifying the tax code: “Fewer people have to itemize. It’s easier to do your tax return.”
Wages and the Budget Deficit: Unfulfilled Promises
One of the boldest claims made during the TCJA rollout was that businesses would pass their tax savings onto employees through higher wages. On this point, Patel was unequivocal: “There’s absolutely no evidence that anybody below top management received higher wages as a result of the tax cuts.”The TCJA also promised not to grow the budget deficit. However, initial estimates projected a $1.5 trillion revenue loss, and even the most optimistic models accounting for economic growth fell far short of offsetting that cost.President Trump has advocated for the permanent extension of the TCJA and proposed some additional tax cuts besides, all while promising to balance the federal budget—a combination that Patel summarily dismissed as impossible.“There’s no world in which balancing the budget with these tax cuts is mathematically possible,” Patel asserted.
Looking Ahead
As Congress debates whether to extend the TCJA and potentially deepen the cuts, Patel’s insights serve as a sobering reminder of the gap between policy promises and economic outcomes. Her research underscores the importance of critically evaluating tax policies for their long-term implications, not just their immediate appeal.For policymakers and taxpayers alike, her analysis raises an essential question: Is this the kind of “rocket fuel” the economy needs, or are there better ways to ignite growth?
Listen to the full interview here.