Effects of the Tax Cuts and Jobs Act: A Preliminary Analysis

National Tax Journal 71(4): 589-612 (2019)

50 Pages Posted: 10 Jan 2019 Last revised: 15 May 2019

See all articles by William G. Gale

William G. Gale

Brookings Institution

Hilary Gelfond

Brookings Institution; Harvard Kennedy School (HKS), Students

Aaron Krupkin

Brookings Institution

Mark J. Mazur

U.S. Department of the Treasury, Internal Revenue Service

Eric J. Toder

Urban Institute

Date Written: June 13, 2018

Abstract

This paper examines the Tax Cuts and Jobs Act (TCJA) of 2017, the largest tax overhaul since 1986. The new tax law makes substantial changes to the rates and bases of both the individual and corporate income taxes, cutting the corporate income tax rate to 21 percent, redesigning international tax rules, and providing a deduction for pass-through income. TCJA will stimulate the economy in the near term. Most models indicate that the long-term impact on GDP will be small. The impact will be smaller on GNP than on GDP because the law will generate net capital inflows from abroad that have to be repaid in the future. The new law will reduce federal revenues by significant amounts, even after allowing for the modest impact on economic growth. It will make the distribution of after-tax income more unequal, raise federal debt, and impose burdens on future generations. When it is ultimately financed with spending cuts or other tax increases, as it must be in the long run, TCJA will, under the most plausible scenarios, end up making most households worse off than if TCJA had not been enacted. The new law simplifies taxes in some ways but creates new complexity and compliance issues in others. It will raise health care premiums and reduce health insurance coverage and will have adverse effects on charitable contributions and some state and local governments. Looking forward, the ultimate effects of TCJA will depend on the currently uncertain responses of other countries, the Federal Reserve Board, and future Congresses, among others.

Suggested Citation

Gale, William G. and Gelfond, Hilary and Krupkin, Aaron and Mazur, Mark J. and Toder, Eric J., Effects of the Tax Cuts and Jobs Act: A Preliminary Analysis (June 13, 2018). National Tax Journal 71(4): 589-612 (2019). Available at SSRN: https://ssrn.com/abstract=3280582 or http://dx.doi.org/10.2139/ssrn.3280582

William G. Gale (Contact Author)

Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States
202-797-6148 (Phone)
202-797-6181 (Fax)

Hilary Gelfond

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Harvard Kennedy School (HKS), Students ( email )

Cambridge, MA
United States

Aaron Krupkin

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Mark J. Mazur

U.S. Department of the Treasury, Internal Revenue Service

1111 Constitution Avenue, NW
Washington, DC 20224
United States

Eric J. Toder

Urban Institute ( email )

Urban Institute
2100 M Street NW
Washington, DC 20037
United States
2022615577 (Phone)

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