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1 Alex Muresianu, Tax Cuts and Jobs Act, Inflation Reduction Act, CHIPS Act: Comparing and Contrasting the New Industrial Policy 1 (2024)

handle is hein.taxfoundation/txcsadjb0001 and id is 1 raw text is: *6TAX FOUNDATION Tax Cuts and Jobs Act, Inflation Reduction Act, CHIPS Act: Comparing and Contrasting the New Industrial Policy Alex Muresianu Senior Policy Analyst March 2024 Key Findings • The Tax Cuts and Jobs Act (TCJA), enacted in 2017, presents one example of supply-side economic policymaking focused on lowering the cost of capital across the economy. • The CHIPS and Science Act (CHIPS) and Inflation Reduction Act (IRA), both enacted in 2022, represent an alternative approach focused on large subsidies for semiconductors and renewable energy. • The conventional supply-side approach relies on incentivizing investment across the economy, while the industrial policy approach relies on reallocating investment to specific industries. • While the approaches differ, they share a reliance on similar linkages: new capital investment drives productivity growth, which grows the economy and raises wages for workers. • The linkages take time to take effect, and it can be difficult to isolate the effects of tax policy on pro- ductivity and wage variables, particularly in the short term. • One simple approach is to consider how investment performed relative to pre-law baseline projec- tions. • Following the TCJA, private nonresidential fixed investment outperformed pre-TCJA expectations. More complex academic research to date has supported the finding that the TCJA boosted invest- ment. • Following the IRA and CHIPS Act, aggregate private nonresidential fixed investment has roughly fol- lowed pre-law baseline projections, but the subcomponent of manufacturing structure investment has boomed. • While we should be cautious about drawing too-strong conclusions based on the data so far, there is plenty of reason to be skeptical of the merits sector-specific policymaking exemplified in IRA/CHIPS. The Tax Foundation is the world's leading nonpartisan tax policy 501 (c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION 1325 G STREET, NW, SUITE 950, WASHINGTON, DC 20005 202-464-6200 1 taxfoundation.org

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