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Former President Donald Trump is proposing to lower the federal corporate tax rate to 15%, insisting that when he lowered it to 21% starting in 2018, revenues received by the government actually went up due to economic growth it spurred. Economists say that’s not what happened.
They say that while cutting the rate from 35% to 21% did stimulate some growth, it did not cover the loss in tax revenue. Vice President Kamala Harris, meanwhile, claimed “the Trump tax cuts blew up our federal deficit.” That’s a subjective characterization, but most economists agree the tax cuts did add to the nation’s rising debt.
When the Trump-championed Tax Cuts and Jobs Act went into effect in 2018, economists saw an opportunity to test the theory that tax cuts pay for themselves due to economic growth.
Six years later, Trump says the results are in and that the U.S. took in more revenue after corporate tax cuts in the TCJA. Revenues actually went down in the first two years after the TCJA was enacted, and then the pandemic hit — which muddied analyses of the TCJA’s impact.
Revenues went up after 2020, though economists say revenues are not up as much as was expected in the absence of the TCJA when taking inflation into account. And the government’s nonpartisan Congressional Budget Office has said the tax law is contributing to rising national debt, and would add hundreds of billions to the nation’s debt if all the individual income tax provisions set to expire at the end of 2025 are extended.
Trump’s Take
Back in September 2017 before Congress had even taken up his promised tax changes, Trump promised, “It will be revenue-neutral when you add growth because we’re going to have magnificent growth.”
The government’s nonpartisan budget experts, however, were less optimistic. Late that year, Trump signed the tax legislation into law. In 2018, the CBO estimated that on a conventional basis, the law would increase deficits by about $1.8 trillion over 10 years (or by about $2.25 trillion including interest on the additional debt). Expected economic growth from the tax cuts would offset some of that, CBO said, but even with that growth, the law would increase deficits by about $1.3 trillion (or by $1.9 trillion including interest on the additional debt).
Nonetheless, in August 2018, Trump’s treasury secretary, Steve Mnuchin, insisted that due to a stimulation of growth “this tax plan will not only pay for itself but in fact create additional revenue for the government.”
As we wrote in early 2019, that wasn’t true in the first year. Overall revenues went down in the first year of the tax cuts — and in 2019 and 2020 overall. In 2020, though, after the start of the pandemic, revenues began to steadily rise.
At a campaign rally in Pennsylvania on Oct. 5, Trump talked about reducing the corporate tax rate even lower, from 21% in the TCJA to 15% (provided companies agree to make their products in the U.S.).
“So I cut it from 39% to 21%,” Trump said. “Everyone said that was impossible. I got it done, and we had the best boom we’ve ever had. We did more revenue when we had it at 21 than when it was at 39. Think of it. Much more.” Trump wrongly said, “The following year we did much more.”
A point of clarification: While Trump often says he cut the corporate tax rate from 39% to 21%, the federal statutory corporate tax rate was actually 35% prior to the implementation of the TCJA, which lowered the rate to 21%. Kyle Pomerleau, a senior fellow at the right-leaning American Enterprise Institute, said Trump appears to be including the federal tax plus the average of state and local taxes to get to 39%. But if those are included, then the current rate is roughly 25.8%, not 21%.
Revenues Post-TCJA
It is technically true that corporate revenues rose a few years after the passage of the TCJA, as is clear from a graph of government revenue from taxes on corporate income provided by the Federal Reserve. As the data show, corporate tax revenues dropped in 2018, the first year of the TCJA, and were lower still by the first quarter of 2020.
The question is whether the subsequent rise through the second quarter of this year was due to the TCJA, and whether revenues would have risen even more had the TCJA tax cuts not been enacted.
“This seemingly simple question is amazingly hard to answer,” Jeffrey Hoopes, a professor at the University of North Carolina business school and research director of the UNC Tax Center, told us via email.
The steady rise in revenues didn’t begin until the third quarter of 2020 — which coincides with the first year of the COVID-19 pandemic.
“The problem, of course, is that more than the TCJA happened,” Hoopes said. “Congress dumped trillions of dollars into the economy in so-called COVID recovery, and that really helped corporate profits, and therefore, corporate tax revenue for the US Treasury. The question is not whether we did better or worse afterwards, but rather, how much the TCJA actually cost us. And, the answer is it likely cost us a lot. In other words, that sharply pointing up graph would have been even steeper. Some estimates are that the TCJA decreased corporate tax revenue by something like 40%.”
For that last figure, Hoopes is referring to research by Gabriel Chodorow-Reich, Owen Zidar and Eric Zwick that was published in the Journal of Economic Perspectives in the summer of 2024. That report concluded, “First, and most obvious, large corporate tax cuts are expensive and increase the deficit substantially; specifically, the reform reduced corporate tax revenue by 40 percent of the pre-reform level.”
“But, those are econometric estimates,” Hoopes said. “We can’t know for sure.”
Marc Goldwein, senior vice president and senior policy director of the Committee for a Responsible Federal Budget, a nonpartisan group that seeks lower deficits, says the evidence is clear: “The Tax Cuts and Jobs Act reduced revenue. It’s irrefutable. … It definitely increased the deficits.”
“Immediately after the tax cuts were passed, the next year revenues fell,” Goldwein told us in a phone interview, and that was true in real dollars as well as relative to gross domestic product.
In 2021 and 2022, revenues were significantly higher than CBO projected when it projected the TCJA would increase deficits by more than $500 billion for those two years, but by 2023, revenues had returned to the CBO’s projected level.
“Overall the TCJA cost more than we initially projected it would, not less,” Goldwein said. While there has been some economic growth from the tax cuts, he said, there is “no evidence” the law “paid for itself,” as some predicted it would.
As part of its regular polling of economic experts in the U.S., the Clark Center for Global Markets at the University of Chicago’s Booth School of Business in November 2023 asked the panel whether they agreed that “[f]ederal tax revenues are substantially lower now as a result of the passage of the TCJA than they would have been had the TCJA not been passed, and all else was equal.” Of the 29 experts who answered, 24 said they either agreed or strongly agreed (83%). Four said they were uncertain, and only one expert disagreed.
In research published in the Journal of Economic Perspectives in the summer of 2024, William Gale, co-director of the Urban-Brookings Tax Policy Center, Hoopes and Pomerleau found that total federal tax revenues in the first two years of the TCJA — 2018 and 2019 — were about $545 billion, or 7.4%, below what was projected by the CBO before the bill was passed, including 37% below CBO’s projection for corporate tax revenue.
“Based on evidence through 2019, we find that the TCJA clearly raised federal debt and increased after-tax incomes, disproportionately increasing incomes for the most affluent,” they wrote.
After 2019, the picture becomes much more cloudy.
“It is hard to discern effects after 2019 because of COVID,” Gale told us via email.
As Gale and his colleagues explained in their paper, “[T]he disruption created by COVID and subsequent fiscal and monetary actions, as well as the large corporate tax cut passed by Democrats in 2022 by way of the Inflation Reduction Act, blur the impact of the Tax Cut and Jobs Act.” The Inflation Reduction Act’s 15% corporate minimum tax was projected to raise corporate tax revenue, but reduce corporate taxes overall through the expansion of green energy subsidies.
“[T]here is no evidence to back up Trump’s claim,” Pomerleau, of the American Enterprise Institute, told us via email. “The TCJA reduced both individual and corporate income tax revenue. If you look at CBO’s estimates of how much the TCJA would reduce federal revenues back in early 2018, they were about right in line with what they ended up being after the fact. For example, the [CBO] projected federal revenue to be roughly $3.49 trillion in 2019 after the TCJA, which was projected to reduce revenue in that year by $285 billion. According to CBO, the federal government actually collected $3.46 trillion.
“It is true the CBO projections are subject to revision when better economic data becomes available,” Pomerleau said. “However, even if you go back to CBO’s 2017 projection—made before passage of the TCJA—they estimated revenue was going to be $3.68 trillion. So a revenue loss no matter how you look at it.
“After 2019, the story is much more complicated,” Pomerleau said. “The COVID pandemic destroyed any clean baseline we could look at. In addition, Congress passed significant policies in the interim that impacted economic output, federal spending, and federal revenues. Furthermore, monetary policy was very accommodative, leading to inflation which also distorts revenue collections. There is simply no sound way to attribute any changes to revenues over the last 4 years to the TCJA.”
Despite the revenue losses, Pomerleau said the TCJA corporate tax cut “did have benefits,” citing “additional productive investment” and “reducing incentives for corporations to shift profits overseas.”
In April, National Bureau of Economic Research-affiliated researchers wrote about the TCJA’s corporate investment incentives. A summary of their paper said that “the increased investment and wages resulting from the law have very limited effects on receipts from the corporate income tax or other revenue sources, such as the payroll tax and income tax. They conclude that such indirect effects do not substantially offset the decline in domestic corporate tax revenue of about 40 percent over the 10-year budget window.”
Presenting an opposing view, Douglas Holtz-Eakin, president of the conservative-leaning American Action Forum and a former CBO director, wrote in April that while there was “a sharp falloff of revenue in 2018, immediately after the rate cut … revenue in 2022 and 2023 is above the amount projected by CBO even though the rate is lower. The latter fact indicates that one does not need the 35 percent rate to generate the revenues that were raised in 2017. In this sense, one might argue the rate cut paid for itself. Yet it is fair to note that revenues were below the projection from 2018 to 2021 – in part because of the arrival of the pandemic in 2020 – and the cumulative shortfall from 2018 to 2023 is $353 billion. In this sense, the cut did not pay for itself.”
However, he argues, the tax changes were still worth it because “the gains from removing tax-base distortions to location, investment, and finance decisions in the corporate sector are sufficient to offset the near-term revenue loss.”
Accounting for Inflation
The Committee for a Responsible Federal Budget counters that once corporate tax revenue is adjusted for the recent surge in inflation it is “almost identical to where CBO projected it would be after the TCJA was enacted.” In other words, on pace to be more than $1 trillion lower over 10 years.
Daniel Bunn, president and CEO of the Tax Foundation, told us via email that without accounting for inflation, revenues are higher than expected.
“How much of that is caused by TCJA? That’s really unclear, and we may never have a full accounting of that because the trade war, pandemic, inflation, etc. all contributed to the trend,” Bunn said. “There were also significant capital gains realizations that were partially driven by a strong market and perhaps some investors who were concerned that the capital gains rate would go up during the Biden administration. The jury is out on how much [of the revenue increase] TCJA caused.”
Bunn also looked at revenue adjusted for inflation, and he said it “shows revenues are below what was projected [by CBO] in 2017.”
“We are raising record amounts of revenue, but you can’t associate all of that with the TCJA,” Bunn said. “Given that the inflation adjustment shows we’re raising less than projected in 2017, the tax cut did increase the deficit by reducing revenues. Even if spending had remained constant (which it didn’t) the tax reforms would have increased the deficit. But, it’s also true that revenues are outperforming [CBO’s] initial estimates of their impact, so the deficit impact is smaller than it would have been otherwise.”
Goldwein said it makes sense to adjust revenues for inflation. “The nominal revenues were higher because the price of everything was higher,” he said.
Did TCJA ‘Blow Up’ Deficits?
As for Harris, she has claimed Trump’s tax cuts “blew up” the federal budget and has called for increasing the statutory federal corporate tax rate to 28% to raise revenues. “There are plenty of leaders in Congress who understand and know that the Trump tax cuts blew up our federal deficit,” she said in a “60 Minutes” interview.
But that’s a subjective characterization.
“The TCJA certainly cost a lot of money,” Hoopes told us. “But much less than several things we have done since.”
“To ‘blow up’ a deficit, I would expect to see a change in slope starting at 2018,” Hoopes said. “You don’t really see it so much. But it clearly was not a cheap tax cut. Some estimates would put it in the ballpark of what the IRA in 2022 cost. It certainly cost a lot!”
With many of the tax cuts scheduled to expire at the end of 2025, CRFB warns: “Extending these expiring tax cuts could lose $3.4 trillion over the subsequent decade, or more than $4 trillion if corporate provisions are revived as well.” The Penn Wharton Budget Model estimates that permanently extending all the tax cuts in the TCJA would increase deficits by $3.83 trillion over 10 years when factoring in the economic benefits. As we said, Trump has proposed cutting the corporate tax rate even lower, to 15%. Depending on how Trump would structure the lower corporate tax rate, CRFB estimates it would reduce federal revenues anywhere from $200 billion to $675 billion over 10 years. PWBM estimates it would reduce revenues by $595 billion over 10 years.
Harris proposes to increase the statutory federal corporate tax rate to 28%. CRFB’s midpoint estimate is that that would raise about $900 billion over 10 years. Nonetheless, CRFB estimates that the full economic plans proposed by Harris and Trump would, on net, add to the country’s debt — Harris’ by $3.5 trillion and Trump’s by $7.5 trillion.
The debt held by the public is currently over $28 trillion. It increased by about $7.2 trillion under Trump, and has risen by $6.7 trillion so far under Biden.
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