Keep Factually independent
Whether you agree or disagree with our analysis, these conversations matter for democracy. We don't take money from political groups - even a $5 donation helps us keep it that way.
Fact check: How did the Tax Cuts and Jobs Act of 2017 affect GDP growth, wages, and federal deficits through 2020?
Executive Summary
The Tax Cuts and Jobs Act (TCJA) of 2017 materially reduced federal revenues and raised projected deficits by roughly $1 to $2 trillion over the first decade, with conventional and dynamic estimates clustering around a $1.1–$1.5 trillion net increase in deficits [1]. Its short-run boost to output was small and concentrated in the early years—CBO and other official estimates put the average annual GDP lift at about 0.7 percent over 2018–2028, with the largest effects in 2018–2023—while evidence on meaningful wage gains for typical workers through 2020 is weak or absent [2] [3] [4]. Extending the cuts without offsets would substantially worsen the long-term fiscal gap and could reduce future GDP relative to baseline once interest costs and crowding out are accounted for [5] [6].
1. Why deficits rose sharply and what the official numbers show
Official budget scorekeepers and policy analysts agree the TCJA reduced revenues and increased deficits significantly. The Joint Committee on Taxation and CBO produced estimates showing a substantial revenue shortfall; conventional accounting points toward roughly $1.5 trillion added to deficits over ten years, while dynamic scoring that includes some macro feedback reduces that figure to about $1.1 trillion—still a large increase [1]. Analysts highlight that extending the temporary individual provisions would amplify those shortfalls, with one projection arguing that continuing 2017 rates could add trillions more in debt over decades and raise interest costs, which would worsen the fiscal outlook and reduce future fiscal space [6] [5]. These conclusions reflect a consensus that the TCJA was a net revenue loss rather than self-financing.
2. The TCJA’s modest and front-loaded GDP effects
CBO’s formal assessment finds the TCJA produced a small, front-loaded boost to GDP, estimating average annual real GDP roughly 0.7 percent higher over the 2018–2028 window, with the most pronounced gains in the immediate post-enactment years [2]. That boost reflects faster growth in investment and demand initially, but CBO’s framing and other analyses caution that the supply-side payoff was limited and that long-run effects fade or reverse once deficit-driven interest costs and debt dynamics are considered [1] [6]. Empirical studies note that other macro factors—oil prices, global demand, and broader business cycles—played major roles in investment and output trends after 2017, complicating attribution of growth purely to the tax law [4].
3. Wages and workers: promises versus evidence through 2020
Claims that the TCJA would meaningfully raise wages for typical workers are not supported by the available empirical evidence through 2020. Analyses by the Economic Policy Institute and subsequent academic work find no discernible break in wage trends attributable to the law and show that benefits from the corporate tax cut overwhelmingly flowed to shareholders and top earners rather than rank-and-file employees [3] [7]. While some firms announced bonuses or one-time pay actions, rigorous studies emphasize that nearly all long-term gains from the C‑corporation rate cut accrued to high-income shareholders and executives, with negligible average wage increases for employees below the 90th percentile at their firms [7]. This pattern undercuts claims of broad-based wage uplift through 2020.
4. The long-run risk: extending cuts and adding debt could shrink future growth
Multiple analysts warn that extending TCJA cuts without offsets would deepen America’s fiscal shortfall and could lower future GDP once higher debt and interest burdens are considered. EPI and CBO-based projections indicate that continuing the cuts would substantially increase the fiscal gap—EPI suggests nearly a 50 percent rise in the gap if expiring provisions are extended—while CBO scenarios show multi-decade debt increases that translate into smaller GDP and higher interest rates in the long run [5] [6]. The Committee for a Responsible Federal Budget and similar groups argue that financing tax extensions through spending cuts or regressive revenue measures would have additional distributional and growth consequences, meaning the fiscal choices about the TCJA are material for future output and inequality [6].
5. What the mixed evidence means for policymakers and the public
The evidence to 2020 yields a clear fiscal verdict—big revenue loss and larger deficits—but an ambiguous growth and wage story: modest, mostly short-term GDP gains and little evidence of durable wage improvement for typical workers [1] [2] [3]. Analysts disagree on the magnitude of dynamic offsets, but all sources converge that the law was not self-financing and that long-term consequences hinge on whether Congress extends temporary provisions and how it addresses resulting deficits [1] [6]. Policymakers weighing TCJA extensions face a trade-off: preserve tax cuts for near-term incomes at the cost of higher debt and probable long-term drag on GDP, or raise revenue and limit deficit-driven constraints on future growth and public investment [5] [6].