November will bring a rare election between a former and current President. Both passed landmark legislation that transformed the US economy. One bill provided large tax breaks for corporations and the rich. The other helped people survive during Covid by expanding social safety net programs.

In December 2017, Donald Trump and Congressional Republicans passed the Tax Cut and Jobs Act (TCJA) with no support from Democrats. The top individual tax rate fell from 39.6% to 37%. Those with lower incomes received small and temporary tax breaks. In addition, estate taxes were reduced and the alternative minimum tax (which disallowed many tax deductions for the wealthy) ) was virtually eliminated—saving wealthy taxpayers a good deal of money. Nonetheless, many people living in states with high income and property taxes paid more in Federal income taxes because Trump’s TCJA limited deductions for state and local income taxes and local property taxes.

The big change, however, was an enormous drop in the corporate tax rate—from 35% to 21%. TCJA also cut taxes on corporate profits earned abroad. Unlike individual income tax cuts, which expire at the end of 2025, most of the corporate income tax cuts were made permanent. On a percentage basis, it was the largest corporate tax cut in US history. One result was predictable—wealthy individuals formed corporations so their income would be earned by firms and would be taxed at 21% rather than 37%.

TCJA was not successful in any way, shape or form. It increased inequality and government debt; and it failed to increase median incomes or stimulate economic growth.

The corporate tax cut did juice the stock market. Corporate tax savings went to pay dividends and to buy back outstanding shares of corporate stock, thereby pushing up stock prices. As with the individual income tax cut, the beneficiaries were the rich, leading to soaring wealth inequality because stock ownership is heavily concentrated among the wealthiest 5% of the population, while the bottom 50%-60% owns very little stock.

Still, in 2018, President Trump boasted that“the biggest winners [from the Tax Cut and Jobs Act] will be everyday American workers,” who would have more jobs and see their wages increase more than $4,000. His Council of Economic Advisors suggested the gains could be more than twice this and would materialize in around 4 years. These predictions were wishful thinking at best. Research by Patrick Kennedy of the Congressional Joint Committee on Taxation and his co-authors (from that committee and the Federal Reserve) found that workers below the top 10% of earners (those making less than $114,000) saw, on average, no change in their wages. Income gains went only to the top 10%. The result was rising income inequality in addition to rising wealth inequality.

Meanwhile TCJA had no measurable positive economic impact. Economic growth was the same both for the two years before TCJA and for the first two years of the TCJA regime (before Covid hit).

Finally, the Tax Cut and Jobs Act did not pay for itself, as Republicans promised. More wishful thinking! In June 2017, the Congressional Budget Office estimated that TCJA would add nearly $2 trillion to Federal debt over the ensuing decade, mainly due to lower tax collections from corporations. In fact the drop in corporate tax receipts was much greater, adding another $1.3 trillion (in addition to the estimated $2 trillion) to the 10-year cost —despite the incentives in TCJA for individuals to incorporate.

Overall, TCJA increased government debt and inequality, without aiding most Americans. Trump and his Republican allies boxed themselves into a corner with only one way out—blame spending for the debt and push to cut Federal government spending, which is largely for defense, Social Security and government-provided health insurance.

President Biden has taken a different approach to fiscal policy. He wants to end tax provisions that benefit the rich and large corporations, and to make the 2024 election, in part, a referendum on TCJA.

In March 2021, soon after Biden became President, Congress passed the American Rescue Plan. Like TCJA it cost around $2 trillion. Unlike TCJA, it focused on spending rather than tax cuts for the rich. The bill gave $1,400 stimulus checks to most Americans, increased the earned-income tax credit, extended unemployment insurance, provided loans and grants to businesses to keep them afloat during the Covid pandemic, and instituted a refundable child tax credit of $3,000 or $3,600 per child (depending on the age of the child). The child tax credit was a major success. It lowered child poverty in the US to 5.2% in 2022, compared to 9.7% in 2020 [see “Money Matters, Especially When It Comes to Children” in the Jan-Feb 2023 Washington Spectator]. Unfortunately, these provisions all expired due to Republican intransigence in the 118th congress.

Republicans began criticizing the American Recovery Act in 2022 as annual inflation rose to 9%. Screaming “Bidenflation”, they blamed excessive government spending for the problem and sought to cut social programs.

They would have gotten closer to the truth had they blamed TCJA, which cut taxes on foreign profits and provided incentives for firms to move production abroad. As economies reopened following Covid, transportation bottlenecks reduced supply. Without TCJA, and with more domestic production, transportation costs and prices would have been lower.

If the American Recovery Plan really caused rising prices, US inflation would have been much higher than inflation in other developed nations. The US fiscal stimulus was over twice the size of other nations relative to the size of the economy. Yet inflation soared in all developed nations in late 2021 and into 2022. To take one example, the UK had no fiscal stimulus; its inflation rate peaked at 11.1% in October 2022. Rising inflation around the world was due to global factors—supply shocks due to Covid and the Ukraine war that impacted all economies (see “Will Inflation Crush the Biden Presidency?” in the Mar.-Apr. 2022 Washington Spectator).

While not increasing inflation, the American Recovery Plan did increase economic growth and employment. It should be remembered that early last year most economists were predicting a US recession in 2023. I was among those pessimists, fearing the consequences of higher interest rates and the end of benefits provided by the American Rescue Plan.

What saved the day was that people still had American Rescue Plan money available for spending. As a result, the US economy grew more than 3% in 2023—by far the best economic performance among the G7 countries. Europe had anemic economic growth last year (barely more than zero) and high unemployment (over 7% in France and Italy). Conversely, US unemployment fell to 50-year lows during 2023 and remains near record lows. Wages (after inflation) are growing much faster in the US than other G7 nations, where they are stagnating or (in the cases of Germany and Italy) falling. This is truly remarkable since the Federal Reserve has been more aggressive in raising interest rates than foreign central banks.

The lesson here is that social insurance programs promote economic growth, help average Americans, and reduce inequality. In contrast, tax cuts for the rich don’t trickle down but do create large government debt.

Past is now prologue. Two diametrically opposed economic visions will be on the ballot come November. One wants to help average Americans by raising spending, creating jobs, and growing incomes across the board. Joe Biden ran for President in 2020 promising not to raise taxes on US families making less than $400,000 per year, even when TCJA expires. He repeated that pledge in his March 2024 State of the Union address and plans to pay for spending programs by taxing the rich. On the other hand, a former President and his party want continued large tax breaks for corporations and the wealthy that don’t trickle down or benefit anyone else.

Our choice is between good economic times, with a broad approach to generating economic and income growth, and the worst of economic times by enabling the rich to become even wealthier.

Steven Pressman is part-time professor of economics at the New School for Social Research, professor emeritus of economics and finance at Monmouth University, and author of Fifty Major Economists (Routledge, 2013)