How Did the Tax Cuts and Jobs Act Impact Stock Prices, Business Investment, Economic Growth and Unemployment in the United States?
Purpose: In this paper, we empirically examine how the Tax Cuts and Jobs Act impacted business decisions to alter investment, output, stock prices and unemployment in the U.S. Design/Methodology/Approach: We use annual data from 1960-2019 to determine the impacts that the U.S. corporate tax rates have on business fixed investment, stock prices (measured as DJIA), output measured as real GDP, and the civilian unemployment rate. Findings: Results show that the tax cuts generate a large increase in the stock market, but have a small and insignificant impact on GDP, business investment and unemployment. Practical Implications: The Tax Cuts and Jobs Act of 2017, cut the maximum corporate tax rate in the United States (U.S.) from 35% to 21% and went into effect in January 1, 2018. Supply-side economist argue that this reduction will encourage U.S. businesses to hire more workers and increase investment as they bring back production to the U.S., helping to increase business investment and output, and reduce unemployment. Keynesian economist who opposed the tax cut believe that it will have little impact on business investment, output or jobs, and be used to increase profits and stock prices as well as the Federal Deficit and Debt.