Statement on Final Passage of the Tax Cuts and Jobs Act
December 20, 2017
Congress today took a historic step toward rewriting the U.S. tax code for the first time since 1986. Our Taxes and Growth model shows that this legislation over the next decade will boost GDP by 1.7 percent and wages by 1.5 percent, while creating 339,000 additional jobs.
For far too long, the U.S. has lagged behind its trading partners with an extremely high corporate tax rate and a worldwide tax system. Now the U.S. will have a much more competitive corporate rate at 21 percent, as well as a territorial tax system that only taxes businesses on income earned domestically. Businesses no longer will be discouraged from reinvesting their profits in America.
Admittedly, the bill isn’t perfect and represents a balance among political compromises, fiscal constraints, and pro-growth policies. The special tax treatment of pass-through businesses could lead to costly, time-consuming tax planning opportunities and disputes. Full expensing—potentially the most pro-growth tax policy lawmakers could adopt—is only made temporary, which means the growth effects will be somewhat muted. And shifting to a territorial tax system, while important, will involve difficult decisions about base erosion rules that will require careful analysis to prevent any unintended consequences.
Nevertheless, it is encouraging to see Congress work through the very difficult, challenging process of reforming the tax code and producing an end product that makes important progress. We at the Tax Foundation have worked hard to educate federal and state lawmakers about the trade-offs involved and will continue to do so throughout implementation of the bill.