Here are a few headlines you might have seen recently:
- “U.S. federal deficit has ballooned 77% so far this fiscal year”
- “Blame Republican tax cuts for skyrocketing federal deficits and debt”
- “The Tax Cuts and Jobs Act of 2017 has not paid for itself”
You’d have to be living under a rock not to have heard that the deficit has ballooned in recent months and that tax cuts are to blame. But is this true?
{mosads}On Friday, the Congressional Budget Office (CBO) came out with its latest Monthly Budget Review for the first six months of the year. Here’s their big takeaway:
“The federal budget deficit was $693 billion for the first half of fiscal year 2019 … $94 billion more than the deficit recorded during the same period last year.”
Make no mistake, that’s a shocking assessment. If we’re not headed to a $1 trillion budget deficit this year, it’s very likely we’ll see one just in time for the 2020 election.
But if you’ve been reading popular news reports, what might be equally shocking is where the recent deficit is largely coming from. Luckily, CBO breaks down the source of the deficit, dividing between reductions in revenue and increases in spending — and the comparison isn’t even close.
It’s spending-driven all the way.
Total receipts are actually up by $9 billion, but spending is up by far more — to the tune of $103 billion. That nets out to an increase in the deficit of $94 billion.
Now, some readers might be thinking: “But what if the tax cut hadn’t been enacted? Revenue would have been even higher and the deficit would be lower.”
Well, that’s right. It’s just not right by enough to be meaningful in the grand scheme of things.
CBO also breaks down changes in revenue and spending by source, and according to the latest numbers, “individual income and payroll (social insurance) taxes together rose by $14 billion (or 1 percent),” while “corporate income taxes fell by about $11 billion (or 15 percent).”
Meanwhile, “revenues from other sources resulted in a net increase of $7 billion (or 6 percent), mostly because of increased excise taxes and customs duties.”
In other words, even if corporate taxes remained unchanged from last year, and even if Trump’s trade war didn’t offset the tax cut with extra revenue (tariffs, lest we forget, are taxes), the deficit would have only been reduced by $18 billion.
Sure, revenue from income taxes could have been up by more, too, without the Tax Cuts and Jobs Act (TCJA), but it’s a tough case to make that revenue is to blame when total receipts are already higher than they were a year ago.
But, one might insist, the economy is strong right now, so of course revenues won’t be down by that much. This line of reasoning is also problematic, though. Remember that CBO is measuring revenues relative to where they were at this time last year.
For that argument to hold water, you’d have to believe that the economy is even stronger now than it was a year ago. But why would anyone believe that — unless of course you think tax cuts are spurring additional economic growth and associated revenue.
Of course, reasonable people can disagree over the long-term impact of the TCJA. I myself am inclined to agree that the package will likely add to the deficit with increasing severity over the decade, even if the economic benefits are self-evident now.
{mossecondads}But the idea — shamelessly pushed and repeated by many mainstream sources — that this current time of skyrocketing deficits is being driven by tax policy is not just simplistic; it’s flat-out wrong.
Ignoring the fact that deficits are mostly a result of Trump’s spending increases, not his tax cuts, can be a compelling way to temporarily avoid hard discussions about spending cuts.
Indeed, nearly every time anyone brings up desperately needed spending reform, the conversation seems to instantly devolve into a discussion about tax policy, under the false and increasingly accepted notion that tax tweaks can get us out of the situation in which we find ourselves.
Ultimately, whatever one feels about the tax cuts, the numbers don’t lie: Spending is and will remain the root of the problem, and deficits will rise until policymakers summon the courage to get spending under control.
Jonathan Bydlak is a fiscal policy expert and the founder and president of the Coalition to Reduce Spending. He also spearheads SpendingTracker.org. Follow him on Twitter:@jbydlak.