The 2017 Tax Cuts and Jobs Act marked a dramatic shift in American fiscal policy. Big businesses celebrated as corporate tax rates dropped from 35% to 21%. This historic reduction promised economic growth, job creation, and higher wages for workers. Five years later, the results tell a more complex story.
Major corporations saw their tax bills shrink significantly. Apple saved over $43 billion, while Amazon paid zero federal taxes in 2018 despite earning $11 billion in profits. These companies weren’t alone. A study by the Institute on Taxation and Economic Policy found that 60 profitable Fortune 500 companies paid no federal income taxes in 2018, despite collectively earning about $79 billion in U.S. pretax income.
“The Trump tax cuts represented the largest one-time reduction in the corporate tax rate in U.S. history,” explains Mark Zandi, chief economist at Moody’s Analytics. “The question was never if corporations would benefit, but whether those benefits would extend beyond shareholder value to reach average Americans.”
Corporate America initially responded with headline-grabbing announcements. Companies like Walmart and Bank of America offered one-time bonuses to workers. Others promised major domestic investments. Apple pledged to create 20,000 new jobs and invest $350 billion in the U.S. economy over five years. These announcements suggested the tax cuts might indeed deliver on their promised trickle-down effects.
However, data from the Federal Reserve shows that companies directed most of their tax savings toward shareholders rather than workers or new investments. Stock buybacks reached a record $806 billion in 2018, a 55% increase from the previous year. Dividend payments also surged, with S&P 500 companies increasing their payouts by 8.2% in 2018.
Worker wages told a different story. While some employees received one-time bonuses, lasting wage growth remained modest. According to the Economic Policy Institute, real wages for typical workers grew just 1.2% annually from 2017 to 2019, despite record-low unemployment rates. The promised wage boost largely failed to materialize for middle and working-class Americans.
Corporate investment also fell short of expectations. The Federal Reserve Bank of St. Louis reports that nonresidential fixed investment increased briefly after the tax cuts but began declining by mid-2019, well before the pandemic. Many companies opted for financial maneuvers rather than productive investments in factories, equipment, or research.
“The evidence suggests that much of the tax savings went to reward shareholders and executives rather than to create new economic activity,” says Gabriel Zucman, economist at the University of California, Berkeley. “This pattern is consistent with previous corporate tax cuts, where the benefits primarily flow to those at the top of the income distribution.”
Economic inequality worsened during this period. The Federal Reserve’s Survey of Consumer Finances reveals that the wealth gap between America’s richest and poorest families grew to the widest level ever recorded between 2016 and 2019. The top 1% of Americans saw their wealth grow by $7.5 trillion, while the bottom 50% gained just $1.5 trillion.
Tax revenue also suffered. The Congressional Budget Office reported that federal corporate tax collections fell by 31% in fiscal year 2018, the first year after the tax cut took effect. This drop contributed to growing federal deficits, which reached nearly $1 trillion in 2019, before pandemic spending pushed them even higher.
Defenders of the tax cuts point to pre-pandemic economic growth and low unemployment as evidence of success. The U.S. economy expanded at about a 2.5% annual rate from 2017 through 2019, slightly above the post-financial crisis average. Unemployment reached a 50-year low of 3.5% in February 2020.
“The tax cuts helped maintain America’s economic momentum,” argues Douglas Holtz-Eakin, president of the American Action Forum and former Congressional Budget Office director. “Without them, we might have seen the expansion end sooner and unemployment remain higher.”
Critics counter that similar growth rates were achieved under the previous tax regime, suggesting other factors drove the expansion. They also note that the benefits flowed disproportionately to those already doing well. A Congressional Research Service analysis found little evidence that the tax cuts had significant effects on worker compensation or business investment beyond what would have occurred anyway.
The COVID-19 pandemic complicated assessments of the tax cuts’ long-term impact. The economic shock and subsequent government responses overshadowed ongoing debates about the 2017 tax law. However, the pandemic also highlighted existing economic vulnerabilities, including the precarious financial situation of many Americans despite years of economic growth.
As these tax provisions approach their expiration dates in 2025, policymakers face difficult choices. Extending the corporate rate cuts would add an estimated $1.3 trillion to federal deficits over the next decade, according to the Committee for a Responsible Federal Budget. Allowing them to expire would increase tax burdens on businesses still recovering from pandemic disruptions.
The debate extends beyond economics into fundamental questions about fairness in the tax system. Recent ProPublica investigations revealed that many billionaires pay effective tax rates far lower than middle-class Americans, fueling public concern about tax equity.
“The American public deserves a tax system where everyone pays their fair share,” says Amy Hanauer, executive director of the Institute on Taxation and Economic Policy. “The 2017 tax cuts moved us further from that goal by reducing corporate contributions to public needs while delivering windfall gains to shareholders and executives.”
As America approaches another election cycle, the legacy of the Trump tax cuts remains contested territory. The promised economic transformation didn’t materialize as predicted, but neither did the economic collapse some critics feared. What’s clear is that corporate America emerged as the definitive winner, while broader prosperity remained elusive for many Americans.
