Perhaps the most interesting CRS finding was its analysis of 2018 investment patterns. While the growth of wages and consumption were very modest in 2018, capital spending grew smartly, especially in the first half of the year. But Gravelle and Marples identify a surprising phenomenon: The sectors of the economy that showed the most investment growth were those actually hurt by the TCJA.
As the report carefully notes: “Looking at changes in the user cost of capital, effects of investments in structures would be expected to be largest, with small effects on intellectual property. To date, this pattern has not been observed.”. Over an indeterminate period of time, the White House insisted, business tax cuts would result in new investment, greater worker productivity, and, eventually, wage growth of $4,000-$9,000 annually.
Thanks to effective White House messaging, news organizations paid great attention to anecdotal stories of firms giving workers bonuses in late 2017, just as the TCJA was becoming law. But as Gravelle and Marples note, reported bonuses were equivalent to about $28 per US worker. And many were announced so firms could deduct the cost at their higher 2017 tax rate of 35 percent instead of the 2018 rate of 21 percent.
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