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How did the Trump administration's tax cuts affect the economy compared to Biden's tax policies?
Executive Summary
The evidence on the economic effects of the Trump administration’s 2017 Tax Cuts and Jobs Act (TCJA) is mixed: some analysts and models credit it with modest short‑run gains in output and jobs, while many empirical studies and fiscal analyses find little sustained boost to growth, concentrated benefits for top earners, and large increases in deficits. President Biden’s tax proposals reverse key TCJA features—raising corporate and top individual rates and adding anti‑avoidance measures—with forecasts that they would raise substantial revenue and reduce deficits but modestly lower projected GDP relative to current law, reflecting a trade‑off between redistribution and measured growth.
1. Why economists disagree about the TCJA’s payoff—and what the data actually show
Analysts diverge sharply on the TCJA’s macroeconomic impact because models and empirical methods emphasize different channels. Some supply‑side forecasts, including Treasury and certain tax‑modelers, projected short‑run GDP and investment gains from cutting the statutory corporate rate from 35% to 21% and expanding bonus depreciation, with modelled GDP lifts in the 0.3–1.1% range and job gains in the hundreds of thousands [1] [2]. By contrast, multiple empirical studies summarized by policy researchers find no measurable, durable increase in GDP growth, business investment, or wages attributable to the TCJA, while the benefits skewed to the top 1% and deficits rose materially [3] [4]. The disagreement therefore reflects methodology—model assumptions versus difference‑in‑differences or post‑policy observation—and the challenge of isolating tax effects amid other macro shocks [4] [5].
2. Fiscal arithmetic: deficits and distributional consequences that matter for long‑run growth
A consistent finding across independent budget and economic groups is that the TCJA materially increased federal deficits under conventional scoring. Treasury and other analyses projected roughly $1.9 trillion added to deficits over a decade from the TCJA, while analysts warning of long‑run costs estimate much larger fiscal gaps if the cuts were made permanent [1] [2]. Progressive policy researchers emphasize that financing those cuts either by deeper spending cuts to safety‑net programs or higher borrowing would harm low‑income households or reduce growth via higher debt, making the net long‑run economic effect negative [6]. Thus, even if the TCJA produced small short‑run stimulus, the distributional tilt toward corporations and high earners and the deficit implications are central constraints on sustained, broad‑based growth [3] [6].
3. Biden’s counterpoint: revenue, redistribution, and modeled growth trade‑offs
President Biden’s budget proposals reverse large elements of the TCJA—raising the corporate rate toward 28%, imposing minimum taxes, and increasing levies on high‑income households—aimed explicitly at raising revenue and reducing inequality. Budget models such as Penn Wharton and the Tax Foundation project these moves would raise trillions in revenue and narrow deficits, but also project modest reductions in GDP relative to current law over the long run [1] [7]. Different models quantify the growth trade‑off differently—the Penn Wharton review forecasts revenue gains and a small GDP drag by 2034, while the Tax Foundation’s general equilibrium modeling estimates larger negative output and employment effects—illustrating that policy goals (deficit reduction and redistribution) come with modeled costs to measured output [1] [7].
4. Evidence versus agenda: how source selection shapes conclusions
Conclusions track source agendas: academic and progressive think tanks focus on deficits and distributional harms from the TCJA and favor Biden’s revenue‑raising measures as fiscally and socially corrective, arguing permanent low rates would widen the fiscal gap and suppress activity through constrained public investment [6] [3]. Conservative and industry‑aligned organizations emphasize pro‑growth credentials of lower corporate taxes and model larger GDP and job gains from making cuts permanent, while highlighting higher immediate consumable incomes and investment incentives [2] [5]. Both camps use models and selective empirical evidence; the differences stem from prioritizing growth versus redistribution and from model assumptions about capital response, labor supply, and debt dynamics [2] [4].
5. Big picture: what policymakers—and voters—should weigh when comparing the two approaches
The empirical record indicates the TCJA delivered concentrated benefits and a limited growth impulse, while increasing deficits—raising questions about long‑run financing and equity [3] [6]. Biden’s proposals aim to reverse those distributional effects and generate revenue for social investment and deficit reduction, with mainstream budget models forecasting substantial revenue gains but some measured reduction in GDP relative to current law [1] [7]. Policymakers must therefore weigh short‑term stimulus claims and corporate tax competitiveness against long‑run fiscal sustainability, equity, and the economic value of public investments, recognizing that different models will produce different magnitudes but not different directions on these trade‑offs [3] [1].