US Tax Cuts & Jobs Act: Six months on

Tax cuts could help pay for better public services, says TaxPayers’ Alliance

  • Six months on from the Tax Cuts and Jobs Act, new analysis shows that the US economy is in good shape. Unemployment has continued its downward trend to 3.8 per cent in May 2018 and employees have benefited from higher earnings growth than this time last year
  • In Australiapersonal income tax will be cut by $144 billion over the next seven years, which will benefit 10 million Australians this year
  • Meanwhile, in the UK there have recently been repeated calls for tax hikes to pay for big spending increases, despite evidence showing that tax cuts can bring in more revenue
  • The TPA calls on politicians to map out a more positive vision for Britain after Brexit, with strategic tax reform to ease the burden on families and businesses

Click here to read our research note on tax cuts in America

The TPA today calls on politicians from all parties to look again at the evidence showing that tax cuts can bring in more revenue by encouraging economic growth. A debate is raging about the need to spend more taxpayers’ money on the NHS and social care, the Armed Forces and the Police - but most of the answers are lazy calls for higher taxes.

Recently, there have been the following suggestions:

  • A hypothecated tax to pay for higher NHS spending
  • A tax on chocolate
  • Ending the fuel duty freeze
  • Higher Inheritance Tax, Council Tax and business rates to pay for social care 

But other developed countries are going in a different direction. In Australia, the Government has passed a budget which will cut income tax by $144 billion over the next seven years. Over 10 million Australians will benefit from a reduction in their tax bill, with 4.4 million saving over $500 dollars.The Australian Government will also be pressing ahead with plans to make cuts to company tax.

As our new analysis shows, the Tax Cuts and Jobs Act in the US is showing early signs of success, too. By 2019, all income tax bands will see an average reduction of 1.7 per cent in federal income tax. The corporate tax rate has been reduced from 35 to 21 per cent.

  • At least 602 US companies of varying sizes have responded to the legislation with pay rises, bonuses, higher pension contributions and company expansions
  • The largest companies increased capital expenditure in the first quarter of 2018 to a seven-year high

Evidence shows that reducing tax rates can bring in more revenue. For example, in the UK:

  • Corporation tax receipts have increased by 25 per cent in real terms after headline rates came down from 28 per cent in 2010-11 to 19 per cent in 2017-18
  • Income Tax receipts from the additional rate have increased by 37 per cent in real terms after the rate came down from 50 per cent in 2010-11 to 45 per cent in 2013-14

Sources: Public finances databank, 26th June 2018, Office for Budget Responsibility, GDP deflators at market prices, and money GDP, HM Treasury and UK Income Tax Liabilities Statistics, HM Revenue & Customs

And in the United States:

  • Over a period of thirty years, Capital Gains Tax receipts increased by 1,488 per cent after headline rates came down from 35 per cent in 1977 to 15 per cent in 2003.