The numbers tell a different, positive story that will likely only improve.
The numbers tell a different, positive story that will likely only improve.
I n March 2022, the Biden White House issued a statement claiming that “even before the pandemic, the Trump tax cuts had added $2 trillion to deficits over a decade. The deficit increased every year of the previous administration.” Just last month, Senator Elizabeth Warren went further, writing that these tax cuts should be repealed to “close that door before the next $1 trillion slips away.”
The assertion that Trump’s tax policy increased federal deficits is not supported by any substantive analysis. Those who have done the math have, indeed, found the opposite. In June 2022, the Heritage Foundation issued a position paper titled “The Numbers Are In: Trump’s Tax Cuts Paid Off.”
As always, there are many things going on in the economy. For example, the dot-com bubble led government revenues to skyrocket under President Clinton, but Clinton’s policies were hardly responsible for that increase. Nonetheless, the numbers for Trump’s tax policy are so striking that it is hard to support Biden’s assertion with reasonable analysis. Biden is talking about a gaping hole in revenue that just isn’t there.
The Trump tax cuts were enacted in December 2017 and became effective in 2018. In June 2017, before it was known whether there would be any tax cuts, the Congressional Budget Office projected future federal tax revenues based on tax law that was in effect at the time.
Comparing these projected federal tax revenues with the actual federal tax revenues that were collected between 2018 and 2022 shows the following:
While tax cuts were not the only changes during this period, they were, pre-Covid, arguably the biggest relevant change. In 2018, government deficit and debt increased by $201 billion, by $224 billion in 2019, and by $432 billion in 2020 — which, of course, was the year rocked by Covid.
If the numbers had continued to trend in that direction, Biden might have had a point. But both economic theory and history suggest that tax cuts lead private capital spending to rise, economic growth to increase, and tax revenues to swell over time. Consistent with that pattern, revenues exceeded projections and reduced the deficit and debt by $35 billion in 2021 and by $718 billion in 2022.
Did other things change over that time? Sure. For example, the inflation that started to grow in 2021 undoubtedly somewhat boosted incomes earned in 2021 and tax revenues collected in 2022 based on those higher 2021 incomes (although tax revenues in 2022 rose sharply also as a percentage of GDP). And it appears that people cashing in more of the higher capital gains in the strong-stock-market years of 2020 and 2021 increased 2021 and 2022 revenues. All that said, however, the Biden administration is still protesting about a nonexistent hole in government revenue.
For 2018 through 2022, total federal tax revenue was $19.156 trillion — only $105 billion less than the $19.261 trillion that CBO had projected would have been collected had tax cuts not been enacted. How exactly, then, did tax cuts starve the government of trillions?
The story the numbers tell will only improve. If revenue collected in 2023 merely matches that of 2022, it would still exceed CBO’s projection for the year and would reduce the deficit and debt by $535 billion. Cumulatively between 2018 and 2023, revenues would, on this basis, exceed by $430 billion that which CBO projected would have been collected had tax cuts not been enacted. And if that happens, we can be certain that the narrative that Biden and the Democrats will push about this greater revenue won’t include mention of the Trump tax cuts.
And yet these tax cuts surely played an important — and beneficial — supply-side role. Unless the president changes course, the same is not likely to be said about Biden’s subsequent tax increases. At the very least, Biden could do one simple thing so as not to exacerbate the damage he is inflicting on the economy: Allow legislation that will make permanent the Trump-era cuts to the personal-income-tax regime that are set to lapse after 2025.