It’s been two years since President Trump signed the Tax Cuts and Jobs Act into law. To the delight of supply-siders, the law contained significant marginal tax rate reductions for individuals and corporations. At the time there was lively debate concerning the likely economic impact of the bill, with opponents pointing to analyses that found little effect from the rate reductions. At the White House, where we worked at the time, we produced analyses that suggested economic growth would surge. On the second anniversary of the TCJA, the numbers are in, and our projections have been vindicated.

The view that the tax cuts would jump-start the economy was based on abundant economic literature examining how tax policy affects decision-making by businesses and individuals. On the corporate side, the tax cut reduced the cost of installing new plant and machinery by about 10%, suggesting that capital spending would jump by the same amount. This would increase the amount of capital per worker and drive up productivity and wages. President Trump emphasized the last point repeatedly, arguing that family incomes would increase by about $4,000 in three to five years, with blue-collar workers benefiting disproportionately.

This predicted increase in capital has materialized, and has translated into additional economic growth. In 2017 our calculations suggested gross domestic product growth would accelerate in response to higher capital spending, with the contribution of nonresidential fixed investment to real GDP growth rising to between 0.8% and 1% in 2018. The contribution of this type of investment to economic growth from the first quarter of 2018 to the fourth quarter of 2018 was right on target, at 0.8%. This wasn’t the existing trend. Capital spending was 4.5% higher in 2018 than pre-TCJA blue-chip forecasts, and this trend continued in 2019.

This extra capital improved productivity and wages and, as expected, did so especially for those in lower-paying jobs. The numbers are striking. Over the past year, nominal wages for the lowest 10% of American workers jumped 7%. The growth rate for those without a high-school diploma was 9%. The median worker benefited as well, but much less so, helping to begin closing the income inequality gap. And about that $4,000? Real disposable personal income per household has increased $6,000 since the tax cuts were passed.

On the individual side, we expected that lower marginal tax rates would encourage people to re-engage in the workforce after years of lower or stagnant participation rates. On this the literature is clear as well. When tax rates go up, younger workers don’t respond much, since they must consider the long-run benefit of giving up the future gains from having more experience. But older workers, whose future wages are less important because their careers have less run time, respond by exiting the workforce.