In conventional supply-side economic models, lower taxes on individuals or businesses incentivize the creation of investment and economic output that would otherwise never have existed. But the Trump administration’s corporate-tax overhaul can boost wages by enticing the investment and job creation happening somewhere else to come to the U.S. Supply-side à la Trump doesn’t necessarily expand the global pie, as the conventional supply-side wisdom would require. America can simply grab a bigger share of the pie.
Prominent Democrats would raise the corporate rate, if they could. Joe Biden, the presumptive Democratic nominee, has declined to propose raising the corporate-tax rate back to the 35 percent that persisted before Trump’s overhaul. Like President Barack Obama, who recognized the burdens of an excessively high corporate-tax rate, Biden proposed settling on 28 percent—higher than today’s 21 percent. Senator Bernie Sanders, when he was still running, advocated restoring the old 35 percent rate. Biden and Sanders cited some combination of fairness and inequality alongside deficit-driven concerns to defend their positions.
When it comes to inequality, however, the sound and fury has so far failed to find expression in the actual data. U.S. Census Bureau measurements show decreases in direct measures of American income inequality since the new tax law was passed. Additional data indicate an acceleration in wages among the lowest-earning Americans relative to their higher-earning counterparts, a trend likely to further decrease metrics of inequality.
As for the deficit, the data do show that revenue from corporate-tax collection has decreased since the legislation passed. In 2019, U.S. corporate-tax receipts were $230 billion, down from $300 billion in 2016. This suggests a deficit contribution from the corporate-tax overhaul of about $70 billion—or about 0.3 percent of GDP. Though the interest rate on U.S. government debt remains near record lows, the costs of the deficit increase may be real. Even so, a policy that advances the administration’s economic and national-security priorities is worth that cost.
But the case for prioritizing America’s competitiveness would remain strong even if the data corroborated the critics’ concerns about inequality. The American public seems to agree with the Trump administration that protecting American jobs from overseas competition should be a bigger priority for the U.S. government than worrying about which Americans are doing better than others.
A 2018 Pew Research Center poll asked Americans to identify issues that should be top foreign-policy priorities. The No. 1 answer was “taking measures to protect the U.S. from terrorism.” The second-highest priority was “protecting jobs of American workers.” Meanwhile, according to a separate survey asking about domestic problems, the “gap between rich and poor” hasn’t registered as a priority among more than about 5 percent of Americans in at least a decade.
In the time since its passage, economists have interrogated each new release of economic data for evidence of the tax reform’s effects. Only the mumbles from future data can tell the full story of whether the corporate-tax overhaul did, or did not, work as promised. But questions about inequality and deficits are beside the point. What the administration aimed to do was improve America’s competitiveness.