The TCJA: What Might Have Been Robert McClelland , Urban-Brookings Tax Policy Center Dan Berger , Urban-Brookings Tax Policy Center Alyssa Harris , Development Seed Chenxi Lu , Urban-Brookings Tax Policy Center Kyle Ueyama , Urban Institute View Abstract

Download Preview (PDF, 1.10 MB) Abstract TThe Tax Cuts and Jobs Act was passed into law on a dramatically accelerated schedule. That speed and the enormous scope of the TJCA and its individual elements suggests that preferable alternatives may have been overlooked. The consequences of a proposed change in tax law are usually estimated with a microsimulation model, but analyzing the large number of possible alternatives to each of the many interconnected elements of the TCJA requires numerous separate estimates. We accomplish this with the Tax Policy Center’s cloud-based microsimulation model, examining over nine thousand alternative changes to the deductions, credits, and tax rates changed under the TCJA. We determine both the trade-offs among the plans and those plans satisfying various criteria, such as minimum revenue loss conditional on a distribution of taxes and flattest distribution of taxes conditional on a given revenue loss.

Macroeconomic Effects of the 2017 Tax Reform Robert J. Barro , Harvard University Jason Furman , Harvard University View Abstract

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Download Preview (PDF, 369.71 KB) Download PowerPoint (PDF, 1.25 MB) Abstract This paper uses a cost of capital framework to analyze the long-run steady state and transition path for GDP as a result of the 2017 tax law. For the law as written, the long-run increase in corporate productivity would be 2.5 percent, which translates into a 0.4 percent increase in GDP after ten years—or an increase in the growth rate of 0.04 percentage point per year. If the 2019 provisions of the law are made permanent, these numbers would be 4.7 percent for long-run corporate productivity, 1.2 percent for GDP after ten years, and 0.13 percentage point increase in the growth rate. The paper does sensitivity analysis, including finding that if interest rates rose as a result of fiscal crowd out the tenth year GDP increases would be 0.2 percent and 1.0 percent for the two scenarios respectively. The paper assesses the short-run impact of the 2.3 percentage point reduction in average marginal tax rates under the law, which would be associated with a 0.9 percentage point increase in the annual growth rate for 2018-19—although the magnitude of the impact could differ from the historical pattern based on the specific tax changes and the economic situation.

How Much Do C Corporations Benefit from the TCJA? Estimates of Average and Marginal Effective Tax Rates by Industry Alex Arnon , University of Pennsylvania Richard Prisinzano , University of Pennsylvania View Abstract Abstract The Tax Cuts and Jobs Act of 2017 (TCJA) substantially reduced taxes on both individuals and business. While considerable attention has been paid to the distribution of the tax cut across households, much less has been paid to heterogeneity in the legislation’s impact on C corporations. Using a novel dataset constructed from IRS tabulations of corporate income tax returns, this paper provides estimates of average and marginal effective corporate tax rates by industry and size, before and after passage of the TCJA. The TCJA reduced the U.S. statutory corporate tax rate from 35 percent to 21 percent. However, few C corporations pay the statutory rate, as deductions, credits, and income deferral strategies allow most to pay a lower rate, called the effective tax rate. A comparison of average effective tax rates pre- and post-TCJA reveals that not all industries benefit equally from the changes. The differential effects are due to industry utilization of certain preferences that the TCJA either eliminated or curtailed. A comparison of the marginal effective tax rates on investment pre- and post-TCJA reveals substantial differences not only across industries but also between equity- and debt-financed investments.