Key Points:
- The Tax Cut and Jobs Act (TCJA) lowered the cost for businesses to purchase new capital.
- Nonresidential fixed capital investment had plateaued in 2015 and 2016.
- Key TCJA components were retroactive to 2017:Q4 and that is when investment began to accelerate.
- In 2019, the amount of productive capital in the U.S. continued to grow because the surge in investment spending has been sustained.
- Cumulatively, investment since the 2017:Q4 is $286 billion higher than it would have been had the level of 2017:Q3 held steady.
Economist Corner:
The economic literature finds that, by reducing the cost of capital, tax reform will encourage capital spending by firms. TCJA did exactly that, and by lowering the cost of capital, increased the incentives for firms to make new investments. As a result, nonresidential fixed investment surged after the tax cuts and stayed at the higher level.