The 2017 US corporate tax cuts increased business investment and employment, but 87% of the estimated short-term private income gains went to the highest-earning tenth of Americans, according to research published in the September issue of the American Economic Review.
The study by Patrick J. Kennedy, Christine L. Dobridge, Paul Landefeld and Jacob Mortenson found higher sales, profits and payrolls. Earnings gains were concentrated among highly paid workers.
The 87% estimate covers private income gains, including income received through business ownership. It is not the share of the government’s tax reduction paid out as wages.
How the comparison works
The researchers matched employer and employee tax records from 2013 to 2019, comparing similarly sized C and S corporations in the same industries. Their method assumes the groups would have followed similar trends without the reform. They found similar earlier trends and tested alternative explanations.
The distinction matters because the companies face different tax systems. A C corporation pays federal income tax on its taxable profits. An S corporation generally passes income through to its shareholders, who report it on their personal returns.
The Tax Cuts and Jobs Act replaced the corporate rate schedule, which had a top rate of 35%, with a flat 21% rate for tax years beginning after 2017. Other provisions changed investment deductions and the taxation of overseas income.
For a simple illustration, applying 35% and 21% to the same $100 of taxable profit produces tax bills of $35 and $21. That $14 difference is a reduction of 14 percentage points in the rate. Actual company tax bills also depend on deductions, losses and other rules.
Business expansion and who benefits
Earlier research offers useful context. A 2024 review by Gabriel Chodorow-Reich, Owen Zidar and Eric Zwick estimated that the law’s business provisions increased investment in physical corporate assets by about 11%, drawing on the wider research literature.
That review also concluded that the lower rate and more generous investment deductions reduced corporate tax revenue by about 40%. These are estimates of the law’s effects, rather than a simple comparison between two years of government receipts.
The authors found that certain investment deductions generated more investment per dollar of lost revenue than other provisions. Allowing a company to deduct equipment costs sooner can make an additional purchase more attractive, because the associated tax saving arrives earlier.
What remains outside the findings
The September paper examines short-run responses. Its main sample excludes publicly traded companies and firms with substantial foreign sales. It does not establish the eventual economy-wide outcome or account for changes in government spending.
The budget question is especially relevant to our recent report on the OECD’s review of tax reforms. Governments have continued introducing measures to encourage investment while facing demands for greater public spending.
For policymakers, the practical questions are separate: how much additional activity a tax measure generates, who receives the resulting income, and what the lost revenue could otherwise finance. A rise in company investment alone cannot answer all three.
