Don’t believe Trump team misdirection. We’re piling up debt during good economic times, and it’s all because of last year’s Republican tax cuts.
The bottom line 2018 deficit number is significant because it occurred during good economic times, when the federal deficit typically falls rather than spikes. But that’s not the most important story. A simple analysis of what Treasury reported shows that virtually the entire deficit increase was because the tax cut enacted in December reduced revenues substantially.
GOP tax cuts are expanding the deficit
Treasury said revenues grew from 2017 to 2018 by slightly less than $14 billion. Given the federal government’s overall $113 billion deficit increase, you might assume that the deficit rose because spending was $127 billion higher.
Overall federal outlays did increase by $127 billion compared with what was actually spent in 2017, but that’s the wrong comparison. The right comparison is the total tax revenue the government would have collected under the old tax law versus the new one.
The Congressional Budget Office estimated fiscal 2018 revenue would be $3.5 trillion under the laws that were in place before President Donald Trump signed the GOP tax cut bill. The actual amount Treasury reported Monday was $202 billion less. That $202 billion would have more than covered the $127 billion in extra spending in 2018.
This comparison, to tax revenues that were expected had the laws stayed the same, unambiguously shows that virtually all of the federal deficit increase that occurred from 2017 to 2018 was because of the new cuts in corporate and individual taxes. Had the tax changes not been enacted, the federal deficit in 2018 would have dropped to well below $600 billion, rather than rising to close to $800 billion.
Four things about this are most troubling. First, both Treasury and CBO expect the deficit to keep spiking. Compared with the CBO pre-tax bill baseline, 2019 revenues will be $263 billion below what they would have been if rates had stayed the same. Treasury’s projected 2019 deficit would be just above $800 billion rather than close to $1.1 trillion.
Second, not content with how much they’ve already increased the deficit, Congress and the White House are seriously considering passing another big tax cut during the lame duck session after the midterms. That will increase it even more.
The House passed this bill just before it recessed for the midterm elections, and the scuttlebutt I hear from budget insiders is that Republican leaders are seriously considering misusing the congressional budget process so no one may filibuster the next deficit increase. In its current form, this new tax bill will reduce revenues by another $630 billion over the next 10 years.
Third, unlike the recession-caused trillion dollar federal deficits of the Obama years that fell precipitously when the economy improved, these deficits are the result of permanent changes in federal revenues caused by the tax law. Not only does this put the constantly promised-but-never-achieved goal of balancing the federal budget in 10 years out of reach, it makes even the projection of a balanced budget into the political equivalent of a practical joke or a hoax.
And fourth, Treasury Secretary Steven Mnuchin and Budget Director Mick Mulvaney are either in denial about these numbers or think no one notices when they say high spending rather than low revenue is why the deficit is rising so precipitously.
Mnuchin and Mulvaney should be ashamed
Last week, Mnuchin said it was the Democrats’ demand for more spending on health care and education that was the sole reason the deficit was increasing.
Mnuchin and Mulvaney should both be embarrassed by these obvious attempts at budget misdirection, but Mnuchin should be especially ashamed. It is Treasury, the department he leads with a staff that reports to him, that has exposed the tax law as the real reason the federal deficit is increasing so steeply.
Stan Collender teaches federal budgeting at the McCourt School of Public Policy at Georgetown University and is the founder of . Follow him on Twitter: @thebudgetguy
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