Six months ago the Tax Cuts and Jobs Act was passed by Congress and signed into law by President Trump. Proof that Americans keep winning from pro-growth tax reform is evident with each new economic report.
So far more than 4 million Americans will receive bonuses and millions more are receiving additional benefits from at least “615 examples of pay raises, bonuses, 401(k) match increases, expansions, and utility rate reductions” due to the tax cuts, according to Americans for Tax Reform.
Adding to that stellar list is the latest benefit reported by the U.S. Bureau of Economic Analysis that American companies repatriated $305 billion of foreign earnings to America since the tax cuts. Comparatively, that total in the first quarter of 2018 was 10 times more than the amount repatriated in the first quarter of 2017. Before the tax cuts, companies were estimated to have $2.6 trillion held in foreign accounts, so more repatriated dollars may soon be on the way.
The BEA notes that the “TCJA requires U.S. parent companies to pay a one-time tax on their accumulated earnings held abroad, but generally eliminates taxes on repatriated earnings.” In other words, a primary cause of this extraordinary increase is foreign earnings no longer being taxed when brought back to the United States.
“U.S. firms that used to build their factories overseas in order to avoid U.S. taxes, they stopped in their tracks because of the tax bill, they are bringing all the money home,” said Kevin Hassett, chair of the president's Council of Economic Advisers.
The last time repatriated earnings saw a big boom was 2005 following the American Jobs Creation Act under President Bush. Much of those funds went to stock buy backs, increased dividends, and mergers and acquisitions, which did not necessarily translate immediately into more economic activity.
Economists, including Chairman Hassett, are more hopeful this time around as many have boosted projected annual economic growth rates. According to the Wall Street Journal, "Macroeconomic Advisers raised its second-quarter gross domestic product forecast to a 5.3 percent seasonally adjusted annual growth rate; as of Monday, the firm had been predicting a 4.6% growth rate. If the latest forecast holds up, it would be the strongest quarterly growth reading since the third quarter of 2003, edging the 5.2% growth rate recorded in the third quarter of 2014."
As expected, pro-growth tax reform contributes to more economic activity as production quickly ramps up. One such company increasing investment is Apple, the largest U.S. taxpayer, which recently announced it will invest more than $350 billion over the next five years because of the new tax law.
Congress should make these tax cuts permanent. But Congress must first do something about excess government spending, which is the driver of taxes and deficits. The national debt already exceeds our entire economic output at more than $21 trillion. We can’t afford to continue the downward spiral into more debt from a lack of spending restraint.
By restraining government spending so that taxes can be lower than otherwise, the benefits of the Trump tax cuts will continue and families will prosper.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.