After two years, President Trump's tax cuts are not on track to pay for themselves, the latest Treasury data released Friday suggest.
Total federal government revenues ended up lower in 2019 than was projected before the passage of the GOP tax overhaul in 2017.
Then, in 2017, the nonpartisan Congressional Budget Office projected that fiscal 2019 revenues, without the tax cuts, would be $3.69 trillion. Instead, revenues with the tax cuts were only $3.46 trillion.
To be certain, the difference, $225 billion, cannot be attributed solely to the tax cuts. Other economic factors have influenced economic growth over the past two years. For example, the tariffs put in place as part of Trump's trade wars likely counteracted the stimulative effect of the tax cuts.
And, in fact, the $225 billion shortfall against projections is better than would have been expected if the tax cuts were the only consideration. The Joint Committee on Taxation, a nonpartisan group of experts that provides tax estimates for Congress, reckoned at the time the tax law was being written that it would lower 2019 revenues by $280 billion.
The committee also estimated, though, that the tax law would not pay for itself. It reckoned that the tax cuts would add about $1.5 trillion to deficits over the course of a decade. Friday's data suggest that tax revenues are coming in roughly in line with those projections, not living up to the much more optimistic picture painted by Republicans at the time of passage, which would require tax receipts to surge.
Treasury Secretary Steven Mnuchin said during the push for the tax cuts and as recently as last month that they would pay for themselves by generating economic growth.
Payroll taxes are higher than projected, as are tariffs, but corporate and individual income taxes are lower.
Multiple economists told the Washington Examiner that they were confident that the tax bill has increased the federal deficit and is not on track to pay for itself.
“The federal government is borrowing a trillion dollars in good times, so we’re in real trouble when the bad times come," said Marc Goldwein, senior policy director for the nonpartisan Committee for a Responsible Federal Budget. "It tells you the [tax law] is a significant contributor — a quarter of our $1 trillion deficit. Was that worth it for large corporate tax cuts?"
There is not likely to be much immediate harm from these deficits, Goldwein said, but the harm will be felt in the long run.
“Deficits are the deferral of pain, where the consequences play out slowly over time, but the costs are real,” Goldwein said. “Everyone enjoys the lower tax cuts today, but your kids are going to pay for it tomorrow with lower incomes, more interest on the debt.”
Texas Republican Kevin Brady, the former chairman of the House Ways and Means Committee and one of the lead writers of the 2017 Republican tax bill, defended the overhaul on the basis of the benefits it has provided for the economy.
“We have a strong economy — millions of people are moving off the sidelines and into the workforce. Treasury confirms that receipts are up by 4% this fiscal year," a Ways and Means Committee Republican spokesman said when asked about the latest figures. "As their report shows, it is spending that continues to drive the deficit, and Republicans remain committed to working together to decrease our national debt without raising taxes on families and local businesses.”
Brady has himself acknowledged in the past that it is “hard to know” what portion of the tax cuts are fully paid for.
“We will know in year eight, nine, or 10 what revenues it brought in to the government over time. So it’s way too early to tell,” Brady said at an economics forum in June of this year.
Calculating the government revenue from the tax cuts isn’t the only element of the bill that remains to be seen. Some economists say that it's too early to judge the benefits to businesses and households as well.
“Economically, investment and wages are looking good right now, but, ultimately, it’s too early to tell. The wages from the [tax law] that the White House promised are going to take a while to tell,” said Brian Riedl, a senior fellow on economic policy at the Manhattan Institute, a conservative think tank, and a former staffer for Republican Sen. Rob Portman of Ohio. “The corporate investments are going to take time to see come to fruition. The investment impact usually takes five to seven years to have full effect.”
Chye-Ching Huang, an analyst for the Center on Budget and Policy Priorities, a left-of-center think tank, said that the benefits to households from the tax cuts are not materializing. “There’s no evidence of the tax cut law substantially increasing growth and real wages compared to the growth that was already occurring during the prior president,” she said.