News & Opinion | March 28, 2019 11:58 am

Is Tax Reform Really Working?

Kevin Brady and Lawrence Lindsey present the case that it is.

The U.S. Is On the Way to Becoming the World's New Tax Haven
(Getty Images)

Two top experts have made the strong case that last year’s tax reform act is delivering lasting benefits to the economy.

The argument regarding the 2017 Tax Cuts and Jobs Act come courtesy of a  new op-ed in The Wall Street Journal from Rep. Kevin Brady (R.-Texas) and Lawrence B. Lindsey, a former economic advisor to President George W. Bush. They contend that any slowdown has been the result of an overreaction by the Fed, which raised its target for the federal-funds rate between Dec. 2017 and Dec. 2018 by 1%, the biggest rise in a calendar year since 2005, in anticipation of an inflation that didn’t really arrive.

As Brady and Lindsey write:

“Thanks to the tax cuts and deregulation, the economy boomed in 2018 despite monetary tightening. The old tax code disincentivized American companies from growing in the U.S. and forced jobs, production and intellectual property offshore. U.S. companies now can invest in the U.S. without a competitive disadvantage. For the first time in memory, more foreign direct investment is coming into the U.S. than going out. Jobs, research and production are returning from overseas.

“As a result, in 2018 the U.S. enjoyed its fastest rate of growth since 2005, and unemployment is at record lows. Wages are finally starting to increase after a long stagnation. The after-tax user cost of capital, or a business’s cost of making additional investments, fell 10%. Contrary to official forecasts, the labor-force participation rate rose, reversing years of decline.”

More importantly, they argue, the long-term benefits in corporate reinvestment won’t be seen just yet.