Jane G. Gravelle and Donald J. Marples
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The CBO projected 3.3% real GDP growth for 2018, but actual growth was 2.9%, suggesting a smaller-than-anticipated effect of the tax revision.
"...In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office’s (CBO’s) projected rate published in 2017 before the tax cut. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although growth rates cannot indicate the tax cut’s effects on GDP, they tend to rule out very large effects particularly in the short run. Although investment grew significantly, the growth patterns for different types of assets do not appear to be consistent with the direction and size of the supply-side incentive effects one would expect from the tax changes. This potential outcome may raise questions about how much longer-run growth will result from the tax revision.....In April 2018, CBO projected real GDP growth for the calendar year 2018 of 3.3% (indicating a projected 3% growth rate without the tax cut). According to the National Income and Product Accounts (NIPA), actual growth rate was 2.9%, which is consistent with a small effect of the tax revision, perhaps even smaller than projected by most analysts. Quarterly growth rates are shown in Figure 1. The revenue loss from the tax cut without incorporated growth effects was estimated at about 1.2% of GBP in 2018... The high rate of growth in the second quarter of 2018 shown in Figure 1 may have been due to the demand-side stimulus of the tax cuts, which began to be reflected in withholding beginning in the first quarter, as well as the possibly delayed receipt of tax refunds. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although examining the growth rates cannot indicate the effects of the tax cut on GDP, it does tend to rule out very large effects in the near term. The data appear to indicate that not enough growth occurred in the first year to cause the tax cut to pay for itself. Assuming a tax rate of 18% (based on CBO estimates), and estimating the tax cut to reduce revenue in calendar year 2018 by about 1.2% of GDP, a 6.7% GDP increase due to the tax cuts alone would be required.15 Rather, the combination of projections and observed effects for 2018 suggests a feedback effect of 0.3% of GDP or less—5% or less of the growth needed to fully offset the revenue loss from the Act...."
Jane G. Gravelle and Donald J. Marples, "The Economic Effects of the 2017 Tax Revision: Preliminary Observations," Congressional Budget Office, May 22, 2019, https://www.everycrsreport.com/reports/R45736.html