CBO figures show tax revenue increased after Trump tax cuts
The Congressional Budget Office’s May 2022 forecast shows the government now expects to generate more tax revenue in the decade following the 2017 “Trump tax cuts” than it had anticipated before. adoption of the tax reform in December 2017.
It doesn’t seem like the tax cuts — which government markers at the time estimated would cost $1.5 trillion over 10 years — were the fiscal nightmare some on the left would have us believe.
In March, House Speaker Nancy Pelosi, D-Calif., called 2017 Trump tax cut $2 trillion ‘GOP tax scam’.
Senator Bernie Sanders, I-Vt., accused Republicans of hypocrisy for supporting tax cuts but opposing the massive spending spree of Congress.
Biden’s White House issued a press release saying “Trump’s tax cuts have added $2 trillion to deficits over a decade.”
But the numbers tell a different story. Despite the political rhetoric, tax revenues are on the rise.
Adjusting the forecast to actual 2022 dollars, before tax cuts, the government projected $40.7 trillion in income tax, corporation tax and payroll tax revenue between 2018 and 2027. The latest budget forecast predicts $41.3 trillion in revenue for that period. Instead of cutting revenue by $1.5 trillion, the latest forecast suggests tax revenue will be $570 billion higher than forecast.
What about corporate tax cuts? Surely the reduction in the corporate tax rate from 35% to 21% must have significantly reduced corporate tax revenues?
Not according to government budget figures.
The government now expects to bring in $3.8 trillion in corporate tax revenue between 2018 and 2027, almost identical to the $3.9 trillion projected before the tax cuts. Moreover, since taxes do not exist in a vacuum – and corporate tax reform has propelled higher income growth and therefore higher income taxes and payroll taxes – the corporate tax reform probably paid for itself.
Did the Congressional Budget Office simply underestimate tax revenue in the forecast for pre-tax cuts?
Maybe. But the budget office says it has historically more often overstated revenues. According to government forecasters, “the CBO’s revenue projections have been too high, on average, over the past few decades, primarily due to the difficulty of predicting the timing and nature of economic downturns.”
So why didn’t the expected drop in tax revenue happen, especially since the decade included a pandemic-related global shutdown? The budget office’s forecast makes at least five references to the “unexplained strength” of tax revenues.
According to economists Tyler Goodspeed and Kevin Hassett, after the 2017 tax cuts, business investment jumped 9.4% from the trend before the tax cuts. For corporations, real investment increased by 14.2%. Likewise, a 2021 report by the Heritage Foundation showed the dramatic growth in investment and wages that occurred after the tax cuts. One of the main drivers of the investment increase has been multinational companies choosing to reinvest in US markets instead of relocating.
The Conservatives expected the reduction in the corporate interest rate and the allocation of all capital spending to lead to strong growth in investment. Comprehensive expense provisions allow businesses to deduct the cost of machinery and equipment immediately, instead of following convoluted depreciation schedules that can last up to 20 years.
The reinvestment in America that tax reform has spurred has paid real dividends for the typical household, increasing its annual rate of income growth tenfold.
Real median household income increased by more than $5,000 in 2018 and 2019 alone. In contrast, over the 30 years to 2017, real median household income increased by a total of $7,600, or about $250 per year.
Then, starting in 2020, as the economy roared with record wages, record unemployment, high labor force participation and low inflation, the government’s hyperactive response to the multi-trillion dollar pandemic has derails the economy and the budget.
Due to the glut of new spending, the Congressional Budget Office now projects that federal spending will be more than $9 trillion higher between 2020 and 2029 than it projected at the start of 2020. trump taxes, it looks like the final price on the recent federal spending spree will be even higher than originally announced.
All Americans are now paying part of that price in the form of higher inflation.
In February 2021, the Congressional Budget Office projected inflation of 1.9% in 2021 and inflation at or below 2.4% throughout the decade. Instead, after the spending spree, April 2022 inflation figures showed Americans paying 8.3% higher prices than a year ago.
If interest rates rise significantly in response to inflation, Americans could end up paying the price for overspending for many years to come.
Due to the combined effect of increases in interest rates and debt, by 2032 projections show that the entire economic output of Alaska, Delaware, Idaho, Maine , Montana, New Hampshire, North Dakota, Rhode Island, South Dakota, West Virginia, and Wyoming would be insufficient to pay the annual interest on the national debt. That’s 11 states.
Higher interest rates caused by Washington’s overspending will also crowd out business investment and leave workers with real wages lower than they would otherwise.
Congress and the Biden administration must stop making it harder to do business and work in America. It is time to reverse our current course and redouble our efforts on the pro-growth policies that worked well just over two years ago.
Unfortunately, many provisions of Trump’s tax cuts are set to expire over the next few years. The capital expenditure provisions in the current law will phase out between 2023 and 2027.
Lawmakers should push unabashedly to permanently expand tax reforms that spur investment and growth in America, while simultaneously snatching the nation’s overdrawn credit card from their overspending colleagues.
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