In December 2017, just days before President Donald Trump signed the $1.9 trillion tax legislation that would create sweeping changes to the U.S. federal tax system, he told television viewers that “it’s going to be one of the great Christmas gifts to middle-income people.”

For several months, the president had been selling the legislation on the claim that the tax cuts would “be rocket fuel for our economy.” His claim was critical to defending against the criticism that most of the tax cuts would go to corporations and the very wealthy—supposedly, the money would ‘trickle down’ to the middle class. The president and administration officials, often echoed by Congressional Republicans, claimed that as a result of the tax cuts:

• Business investment would jump.
  
• GDP growth would skyrocket to between 4 and 6 percent.
  
• Household incomes would increase between $4,000 and $9,000.
  
• Job growth would accelerate.
  
• The tax cuts would ‘pay for themselves’—adding nothing to the federal debt, or even reducing it.

These claims were not the president’s invention; they originated with and were repeated by the most senior economic policy experts in his administration. Kevin Hassett, then the chairman of the president’s Council of Economic Advisers (CEA), said that the median wage increase for workers due to the tax cuts could amount to $20,000 per year. Treasury Secretary Steven Mnuchin said that “not only will this tax plan pay for itself, but it will pay down debt.” Gary Cohn, then the director of the National Economic Council (NEC), said that “we can pay for the entire tax cut through growth over the cycle.”[iii] Larry Kudlow, the second director of the NEC, claimed that “the deficit…is coming down, and it’s coming down rapidly.”

Other economists were highly skeptical of these claims. Jason Furman, chairman of the CEA during the Obama administration, said that the White House claim of up to a $9,000 increase in household income due to corporate tax cuts was “more than a little far-fetched.” Austan Goolsbee, another former chairman of the CEA said that the administration’s “trickle-down, magic-beanstalk…argument” was “nonsense.” Former Treasury Secretary Larry Summers said that he “would be hard pressed to give [the administration’s tax analysis] a passing grade.”

Almost two years after the tax cuts were enacted, evidence clearly shows that the critics were right. Overall, the economy is not outperforming solid trends that predated implementation of the tax cuts and were inherited from the Obama administration.

• GDP growth has averaged 2.5 percent—exactly the same as the average in the quarters before the tax cuts, and nowhere near the 6 percent promised by the president.
• Business investment, which is essential to a stronger economy, lags substantially behind the average of the quarters that preceded the tax cuts.
• Household income increased only $550 in the first year after implementation of the tax cuts—far behind the previous three years and not close to the $4,000 to $9,000 or more per household that the administration had claimed.

The Congressional Budget Office now projects that the 2017 tax cuts will increase the national debt by $1.9 trillion over 11 years. The tax cuts are not remotely on track to ‘pay for themselves.’ As a result, policymakers in the future may be pushed to make cuts to programs that are critical to middle-class families, like Social Security and Medicare, and forgo crucial investment in infrastructure and education that are essential to sustainable economic growth.

In addition, the almost $2 trillion hole in the budget may make the economy more vulnerable to the next recession because it will be far more difficult for Congress to find the will and resources to pass the fiscal stimulus necessary to jump-start the economy. This is especially concerning given that the Federal Reserve has less ability to fight the next recession because it cannot implement large rate cuts to stimulate the economy.

As a result, it is crystal clear that the 2017 tax cuts have not remotely achieved the economic miracle that the Trump administration promised. While die-hard defenders of the tax cuts likely will claim that the greatest benefits still lie in the future, the current trends suggest that those benefits will never be achieved and that the rationale for the tax cuts was unsound. By the time the experiment has fully run its course, Americans will already have paid a very steep price.