“Tax cuts pay for themselves through economic growth by generating sufficient additional tax revenue to offset the initial revenue loss.”

We estimate the effects of personal income tax decreases on financial well-being, including qualitative subjective assessments and quantitative measures. A plausibly causal design shows that tax decreases in the Tax Cuts and Jobs Act made survey respondents more likely to say they were “living comfortably” financially, with null effects at lower levels of subjective financial.

Despite the ardent claims of its advocates, TCJA reduced revenue significantly relative to what would have been generated had the law not passed. That is, nothing approaching a Laffer Curve effect applies to TCJA. In 2018 and 2019, total federal revenue was $545 billion, 7.4 percent lower than projected before TCJA, with corporate tax revenue declining by more than 37 percent. In a 2019 survey undertaken by the National Association of Business Economics, 84 percent of businesses reported that the tax cut had not altered their investment or hiring decisions.

TCJA was advocated as a way to increase tax-based supply-side incentives that could boost the economy. But TCJA clearly reduced federal revenues. The effect on GDP is difficult to discern, with the major decline in revenues appearing to have happened before the law was enacted.

Before and after passage of the Tax Cuts and Jobs Act (TCJA), several prominent conservatives... claimed that the act would either increase revenues or at least pay for itself. The TCJA, however, is not that tax cut. The actual amount of tax revenue collected in FY2018 was significantly lower than the CBO's projection made in January 2017—before the tax cut was signed into law. The TCJA did not pay for itself, nor is it likely to do so in the future.

In early 2018, following passage of the Tax Cuts and Jobs Act (TCJA), the Congressional Budget Office projected revenue collection would total about $27.0 trillion between Fiscal Years 2018 and 2024, incorporating roughly $1.8 trillion in lower revenue from the net tax cuts and nearly $400 billion of positive revenue feedback from growth effects. Outside of 2022, current and projected revenue came in about $100 billion under CBO’s 2018 projections on a real basis – a modest 0.5 percent below projections. Evidence suggests the TCJA has likely decreased revenue by more than originally projected.

We estimate that permanently extending the TCJA would increase primary deficits by $4.0 trillion over the next decade on a conventional basis and by $3.83 trillion including economic feedback effects. Including economic feedback effects, revenue falls by $3,834 billion over the 2025 – 2034 period, consistent with economic growth paying for about 4.5 percent of the 10-year loss in revenue.

In a recent NBER study, Taxation and Economic Growth (NBER Working Paper No. 5826) Eric Engen and Jonathan Skinner conclude that a major tax reform -- on the order of scaling back average tax rates to those last seen in the Eisenhower Administration -- would increase economic growth by at most 0.2 to 0.3 percentage points. The authors caution, however, that while the growth effects of tax reform may be small in the short-term, their impact is much larger over a longer horizon.

Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts, they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates. The net impact on growth is uncertain, but many estimates suggest it is either small or negative. The historical evidence and simulation analyses suggest that tax cuts that are financed by debt for an extended period of time will have little positive impact on long-term growth and could reduce growth.

Over 75 percent of the on-budget surplus arises from projected cuts in real discretionary spending. These cuts are unlikely and may not be advisable either.

Leveraging a natural experiment due to idiosyncrasies in U.S. tax law, the study compares outcomes of corporations that received larger versus smaller tax cuts, providing clean before‑and‑after comparisons across otherwise similar firms. The researchers identify a substantial tax cut of 5–6% for C‑corporations relative to S‑corporations, fueled by the TCJA's reduction in corporate tax liability. This translated into a 4.4 percentage‑point uptick in their capital stock, pointing to meaningful firm expansion.

Tax cuts do not reliably fuel economic growth. Cold evidence and common sense, however, show that tax cuts and incentives are an ineffective growth strategy for states. Simply put, lower taxes are not a very good way to produce better economic outcomes.

Tax cuts don't pay for themselves. While well-designed tax cuts may grow the economy (often not as much as tax reform), there is no case in which they could grow the economy enough to be self-financing. At best, tax cuts can finance a fraction of their costs through faster growth – and maybe not even that.

A permanent TCJA would increase long-run GDP by 1.1 percent and generate $1.47 trillion in dynamic tax revenue feedback over 10 years, offsetting about 22 percent of the $6.6 trillion conventional revenue loss. The feedback reduces but does not eliminate the net deficit increase.

The Laffer Curve is a concept in economics that illustrates a theoretical relationship between tax rates and tax revenue. Empirical studies, including research by economists such as Martin Feldstein, has suggested that taxable income is elastic with respect to tax rates especially among high earners. That supports the idea that higher rates can sometimes reduce total revenue.

Further, the four co-authors find that the C-corporation rate cut delivered $122 billion in additional private income per year—but to achieve that modest output gain, the federal government spent $86 billion in foregone revenue.

The European Central Bank released a study showing that there are substantial Laffer Curve effects and that lower tax rates generate large amounts of revenue feedback. In a few cases (Sweden and Denmark), researchers conclude that some lower tax rates would be in that rare category of self-financing tax cuts. However, the key point is that changes in tax rates do lead to changes in taxable income, making it an empirical question to determine the revenue impact.

The CBO estimates for making both individual and business tax cuts permanent imply extending the entire 2017 tax cuts would boost GDP by roughly 0.3 percent in 2034. The business tax cuts are significantly more pro-growth than individual tax cuts. This is consistent with Tax Foundation findings of 1.1 percent long-run GDP growth, but the economic effects do not outweigh the drag of large government debt.

Cutting taxes does not boost economic growth nor lead to more taxes being collected. The notion that it does, known as the Laffer Curve hypothesis, has been widely discredited.

This paper studies the macroeconomic effects of business tax cuts using a dynamic general equilibrium model that incorporates endogenous debt and equity, examining effects of permanent and temporary tax policy changes in both the short and long run, including general-equilibrium effects through interest rates, wage rates, and labor supply.

The Tax Foundation's dynamic projections from 2017 imply the tax cuts will have paid for themselves in 2028. Actual tax collections and current Congressional Budget Office (CBO) projections—which have been significantly affected by interceding legislation and unforeseen economic events—show that revenues have almost fully recovered from the 2017 cuts. Assuming the law is made permanent, the break-even point is pushed back to roughly 2027, and the law pays for itself by 2033.

The concern within the Federal government about potential loss in revenues that would result from the tax cuts reflects a logical concern that a cut in tax rates would cause a loss of tax revenues and a larger deficit in the federal budget. A $114 billion tax cut in three years would overwhelm existing productive capacity with increased demand and sweep away hopes of curbing deficits and containing inflation.

Dynamic scoring by the Congressional Budget Office and Joint Committee on Taxation consistently shows that major U.S. tax cuts like the 2017 TCJA do not fully offset revenue losses through growth; feedback effects typically recover 20-30% of the static revenue loss, not 100%. This aligns with empirical studies from the IMF and OECD indicating that tax cuts financed by deficits crowd out investment and do not pay for themselves.