Despite Collins’ claims, report shows tax cuts didn’t increase wages or pay for themselves

WASHINGTON, DC – OCTOBER 02: Sen. Lisa Murkowski (R-AK) (L) and Sen. Susan Collins (R-ME) share an elevator as they head for the weekly Senate Republican policy luncheon at the U.S. Capitol October 02, 2018 in Washington, DC. Senate GOP leaders agreed last week with the Judiciary Committee to allow the FBI to conduct a one-week investigation into sexual assault allegations against Supreme Court nominee Judge Brett Kavanaugh before the Senate votes on his confirmation. (Photo by Chip Somodevilla/Getty Images)

A new nonpartisan report shows that several of the key claims made by Republican federal lawmakers, including Senator Susan Collins, to justify the 2017 GOP tax cuts have not been borne out.

Last week, Congress’s independent research agency, the Congressional Research Service, issued a report assessing the economic impacts under the first year of the Tax Cuts and Jobs Act.

The report found that rather than being “rocket fuel” for the U.S. economy, as President Donald Trump sold the tax overhaul, overall economic growth remained level with pre-tax cut projections. It also found that while many companies did use their tax savings, such as through record-breaking stock buybacks, ordinary workers saw very little growth in their wages.

Collins, who was a critical vote for the overhaul, joined President Trump and Republican leadership in claiming that the tax plan would spur growth and raise wages.

“Americans will continue to see more benefit from this law in the form of higher wages,” Collin wrote in an op-ed in Dec. 2017.

She argued for cutting the corporate tax rate, “The United States cannot continue to have the highest statutory corporate tax rate in the world at 35 percent,” and then claimed on Meet the Press doing so would produce growth, “Economic growth produces more revenue and that will help to offset this tax cut.”

For those advocating for a fair tax code, they believe the CRS report confirms what they were warning against ahead of the 2017 vote.

“The excuse most Republicans gave is the same old tired, supply-side line that tax breaks for the rich and corporations will trickle down to average working families. The CRS report confirmed that did not happen,” Frank Clemente, executive director of Americans for Tax Fairness, told Beacon. “This legislation was largely on the side of the biggest corporations and the wealthiest Americans, and that is the side where Senator Collins planted her feet.”

Small, if any, first-year effect on the economy

Gross domestic product (GDP) grew by 2.5 percent in 2014, 2.9 percent in 2015, 1.6 percent in 2016, 2.2 percent in 2017 and 2.9 percent last year. The CRS report finds that 2018’s marginally higher growth is in line with the projected rate published by the Congressional Budget Office before the tax overhaul.

“On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy,” the researchers said.

“A 20-percent corporate tax rate, immediate full expensing, repatriation of U.S. corporate cash overseas, and a 23 percent discount for sub-chapter S pass-throughs will generate way more growth and investment than mainstream forecasters suggest,” White House economic adviser Larry Kudlow wrote in 2017.

In March, Kudlow also claimed that revenue lost to the tax plan is being paid for by the increased economic growth he says the cuts create. The report reveals, however, that Kudlow’s claims are inaccurate.

“The data appear to indicate that not enough growth occurred in the first year to cause the tax cut to pay for itself,” the researchers said. “Observed effects for 2018 suggests a feedback effect of 0.3 percent of GDP or less — 5 percent or less of the growth needed to fully offset the revenue loss.”

What the tax overhaul did do was cut the average corporate tax rate nearly in half, from 23.4 percent to 12.1 percent, the CRS report found. It also significantly slashed individual taxes for people making more than $1 million a year, on top of cutting rates on pass-through companies and estate taxes, which disproportionately benefit the wealthy.

In all, the Tax Cuts and Jobs Act is estimated to reduce revenue by $1.5 trillion over 10 years, according to the Joint Committee on Taxation.

“That is money that is not going to shore up Social Security, Medicare and Medicaid — money that’s not going to make new investments in education, healthcare, or infrastructure for a clean energy economy,” Clemente said. “Now, the government is getting starved by these tax cuts that Senator Collins voted for.”

No indication of a surge in wages

For workers, the CRS report found, the benefits promised from either large-scale economic growth or from employers’ reduced corporate tax rate have not trickled down in the form of higher wages.

In October 2017, the Council of Economic Advisers, which advises the president on economic policy, predicted that slashing the corporate tax rate from 35 to 20 percent would increase the average household’s income by $4,000 a year. However, CRS researchers found that in 2018 real wages grew more slowly than GDP — 2 percent wage growth compared with 2.9 percent GPD growth. Even without the tax cuts, wages should grow with the economy, the report explains. If workers were seeing higher pay as a result of the tax overhaul, the data should show wage growth outpacing GDP growth.

“There is no indication of a surge in wages in 2018 either compared to history or relative to GDP growth,” the researchers said.

Tax plan favored higher-income taxpayers

Tax fairness advocates are emphasizing the fact that the CRS report further concludes that the GOP’s tax overhaul has overall favored the wealthy.

“Distributional analyses of the tax change suggested that the tax revision favored higher-income taxpayers, in part because most of the tax cut benefited corporations and in part because the individual income tax cut largely went to higher-income individuals,” the report reads.

While the corporate benefits of the tax law are to remain, cuts to middle-income households are set to expire in 2025. Tax fairness advocates warn that this scenario will only further boost decades of growing income inequality.

“Taxes work to make inequality either better or worse,” Clemente said. “When you cut taxes for the rich and corporations, their income goes way up — much higher than it does for average Americans. [The Tax Cuts and Jobs Act] is a great income transfer upwards, and didn’t do too much to help the people at the bottom.”

(Photo by Chip Somodevilla | Getty Images)

About Dan Neumann

Avatar photoDan studied journalism at Colorado State University before beginning his career as a community newspaper reporter in Denver. He reported on the Global North's interventions in Africa, including documentaries on climate change, international asylum policy and U.S. militarization on the continent before returning to his home state of Illinois to teach community journalism on Chicago's West Side. He now lives in Portland. Dan can be reached at dan(at)

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