The Tax Cut and Jobs Act (TCJA) of 2017 was designed to stimulate business investment by significantly reducing costs for corporations. One of the key changes was the reduction of the top corporate tax rate from 35% to 21%, along with provisions allowing firms to deduct the entire cost of certain investments. According to a recent analysis by the Brookings Institution, the TCJA raised real corporate investment in equipment and structures by approximately 8 to 14% [c91ade9e].
However, despite these increases, the overall aggregate investment in the U.S. did not see a significant boost. Equipment investment rose slightly from 5.9% to just over 6.0% of GDP, while investment in structures remained stagnant at 3.1% of GDP. The International Monetary Fund noted that the growth in investment following the TCJA was lower than anticipated, and comparisons with projections from the Congressional Budget Office indicated that actual investment growth was only marginally above estimates [c91ade9e].
Furthermore, the analysis highlighted that investment growth in the U.S. was not exceptional when compared to other G-7 countries. Factors such as ongoing trade tensions and tariffs were identified as negative influences on investment levels. Interestingly, the TCJA may have resulted in a shift of investment from non-corporate to corporate firms, raising questions about the overall effectiveness of the policy in stimulating broader economic growth [c91ade9e].
Looking ahead, raising the corporate tax rate to 28% could potentially generate an estimated $881 billion in revenue from 2025 to 2034, suggesting that adjustments to tax policy may be necessary to enhance investment outcomes in the future [c91ade9e]. Overall, while the TCJA aimed to invigorate investment, its impact on aggregate investment levels has been limited, prompting discussions on the need for further reforms in U.S. economic policy [c91ade9e].