12

Source: EPI analysis of data from Tables 1.1.6 and 1.14 from the National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis (BEA). TCJA stands for the Tax Cuts and Jobs Act of 2017. Shaded areas denote recessions.

Policy can fight inequality, or it can generate more. And the policy priority of the Trump administration seems to be increasing inequality. Besides an ongoing assault on regulatory safeguards that provide workers needed leverage in labor market bargaining, the signature policy achievement that the administration and congressional Republicans delivered was a large, regressive tax cut for corporations. The Tax Cuts and Jobs Act (TCJA) of 2017 was championed with loud claims that it would boost investment in productivity-enhancing plants and equipment—eventually leading to higher wages for workers. Nearly a year after the act’s passage, the verdict so far is clear: the tax cuts have simply fattened already bloated corporate profits. Productive investment has not been spurred at all.

The top half of the figure shows undistributed corporate profits as a share of corporate-sector value-added (where value-added is a measure of all income—either wages or profits—generated by a corporation). Undistributed corporate profits are profits not immediately passed through to shareholders as dividends and thus available for investing in plants and equipment, or buying back shares of stock, or for other financial engineering. These undistributed profits soared in the wake of the TCJA, largely because it allowed a tax-free repatriation of profits that had been stored offshore. (A similar tax holiday in the mid-2000s led to a similar spike in undistributed profits.)

The bottom half of the figure shows where this profit bonanza did not end up—in investments in productive plants and equipment. The quarterly investment growth rate shows no indication that investment is shifting into a higher gear because of the tax cut.