In 2017, the Trump administration enacted the Tax Cuts and Jobs Act (TCJA), promising to stimulate economic growth, boost wages, and create jobs. However, analysis from economists and organizations like the Groundwork Collaborative indicates that the TCJA primarily benefited corporations and wealthy shareholders, with minimal gains for the broader workforce.
📈 Corporate Profits Surge, Worker Benefits Stagnate
The TCJA reduced the corporate tax rate from 35% to 21%, leading to a significant increase in after-tax corporate profits. Rather than investing these gains in employee wages or job creation, many corporations directed funds toward stock buybacks and dividends. Between 2018 and 2022, S&P 500 companies allocated over $6.4 trillion to shareholder returns, overshadowing investments in labor or innovation.
Lindsay Owens, Executive Director of the Groundwork Collaborative, highlighted that this trend exacerbated economic inequality. For instance, companies like PepsiCo and Comcast increased prices and reduced their workforce while distributing substantial sums to shareholders. UnitedHealth, in 2023, reported over $22 billion in profits and returned nearly $15 billion to shareholders, all while implementing AI systems that increased coverage denials.
💸 Tax Cuts and Inflation: A Profiteering Opportunity
The TCJA’s reduction in corporate tax obligations coincided with a period of inflation, during which corporations raised prices beyond justifiable costs, contributing to record-high profit margins. Groundwork Collaborative found that corporate profits drove over 50% of inflation in the second and third quarters of 2023.
Owens noted that the lower tax rates made it more profitable for companies to overcharge consumers, as they retained a larger share of increased revenues. This dynamic effectively subsidized corporate profiteering at the expense of American families.
📉 Economic Growth and Wage Stagnation
Contrary to the TCJA’s promises, studies indicate that the law had minimal impact on corporate investment, job creation, or wage growth. A 2023 study by experts from the Joint Committee on Taxation and the Federal Reserve found that the overwhelming benefit from the 2017 corporate tax cuts went to shareholders, top executives, and the highest-paid employees. Corporations overwhelmingly used the tax cuts to pay for trillions of dollars in stock buybacks, benefiting shareholders but doing nothing to grow or reinvest in the economy.
Additionally, the Congressional Budget Office estimated that extending the individual provisions of the 2017 tax law would shrink GDP by the end of the 10-year budget window. Extending these tax cuts would not pay for themselves, despite claims from Congressional Republicans, and in fact, will be more expensive.
🧭 Looking Ahead: Policy Recommendations
As key provisions of the TCJA are set to expire in 2025, policymakers have an opportunity to reassess the tax code. Owens and the Groundwork Collaborative advocate for reforms that discourage excessive shareholder payouts and promote investments in workers and innovation. Suggested measures include increasing taxes on stock buybacks and ensuring that corporate tax policies incentivize fair pricing and employee compensation.
The experience following the TCJA underscores the importance of scrutinizing tax policies to ensure they serve the broader economy and do not disproportionately benefit the wealthy at the expense of the working class.
