It’s of­fi­cial: Tax cuts didn’t ‘pay for them­selves’

The Herald (Rock Hill) - - Nation - BY JIM TANKER­S­LEY

It’s time to put to rest any no­tion that Pres­i­dent Don­ald Trump’s sig­na­ture tax cuts are pay­ing for them­selves. Any­one who says oth­er­wise is ly­ing with num­bers.

A year after the $1.5 tril­lion tax-cut pack­age took ef­fect, eco­nomic growth has ac­cel­er­ated, just as Repub­li­cans promised it would when push­ing the law through Con­gress. Growth ap­pears likely to hit 3 per­cent for 2018, after ad­just­ing for in­fla­tion, which is a full per­cent­age point higher than the Con­gres­sional Bud­get Of­fice fore­cast for the year in 2017. Not all of that in­crease is at­trib­ut­able to the tax cuts, but some of it is.

That’s good news for Repub­li­cans’ long-stand­ing claim that cut­ting taxes would pro­vide such an eco­nomic bump that ad­di­tional tax rev­enue would flow in to make up for what was lost through lower tax rates.

But the bad news is that hasn’t hap­pened. The ad­di­tional tax rev­enue has yet to show up, even with stronger growth.

Data re­leased this week by the bud­get of­fice pro­vides the first com­plete pic­ture of fed­eral rev­enues for the 2018 cal­en­dar year, when the tax cuts were in full ef­fect. (The gov­ern­ment’s 2018 fis­cal year in­cluded three months from the end of 2017, when most of the tax cuts were not in ef­fect.)

In the in­au­gu­ral year of the tax cuts – with eco­nomic growth ac­cel­er­at­ing and the job­less rate fall­ing to an 18-year low – fed­eral rev­enues from cor­po­rate, pay­roll and per­sonal in­come taxes ac­tu­ally fell.

That’s true whether you ad­just rev­enues and growth for in­fla­tion – or not.

After ad­just­ing, it looks even worse. Rev­enues fell by 2.7 per­cent – or $83 bil­lion – from 2017. Con­trast that with the last time eco­nomic growth ap­proached 3 per­cent, back in 2015. The econ­omy grew by 2.9 per­cent after ad­just­ing for in­fla­tion that year – and tax rev­enues grew by 7 per­cent.

The his­tor­i­cal con­trast makes the drop-off look even steeper. Typ­i­cally, econ­o­mists ex­pect stronger growth to gen­er­ate more rev­enue. Peo­ple earn more money, cor­po­ra­tions gen­er­ate higher prof­its and they all pay taxes on it.

The way most econ­o­mists “score” a tax pro­posal is to ask how it would change rev­enue lev­els com­pared to what you would ex­pect the gov­ern­ment to col­lect if the tax cut had not passed – what econ­o­mists call a “base­line.”

In the sum­mer of 2017, for ex­am­ple, the bud­get of­fice pro­jected that the econ­omy would grow by 2 per­cent in the 2018 fis­cal year, and that per­sonal, cor­po­rate and pay­roll taxes would add up to $3.24 tril­lion. Then the tax cuts passed, growth ac­cel­er­ated and, for the 2018 fis­cal year, tax rev­enues fell $183 bil­lion – or 5.6 per­cent – short of that pro­jec­tion.

Repub­li­cans, par­tic­u­larly in the Trump ad­min­is­tra­tion, sold the tax law on claims that it would pay for it­self – even when econ­o­mists out­side the ad­min­is­tra­tion, like the con­gres­sional Joint Com­mit­tee on Tax­a­tion, re­leased models con­tra­dict­ing them. As cor­po­rate tax re­ceipts fell sig­nif­i­cantly last year, some Repub­li­cans be­gan to in­sist that, in fact, the bill was pay­ing for it­self, be­cause to­tal tax rev­enues were very slightly up.

The 2018 fig­ures con­tra­dict that ar­gu­ment, too.

The un­com­fort­able truth for the bill’s sup­port­ers is that the tax cuts are sub­stan­tially con­tribut­ing to a widen­ing fed­eral bud­get deficit, which now ap­pears on track to top $1 tril­lion this year. If growth fades in the com­ing years – as many econ­o­mists be­lieve it will – the cuts could ex­ac­er­bate the deficit even more.

The best-case sce­nario for pro­po­nents is that the cuts spur a sus­tained in­crease in pro­duc­tiv­ity and growth, which in turn pro­duces in­creas­ingly higher rev­enues sev­eral years down the road – enough to re­duce the “cost” of the bill to the bud­get deficit.

This is, oddly enough, what a lot of econ­o­mists pre­dicted would hap­pen with Trump’s cuts, in­clud­ing ones who gen­er­ally fa­vor tax cuts. To­tal fed­eral rev­enues in 2018 came in roughly where the Tax Foun­da­tion, a Wash­ing­ton think tank that typ­i­cally projects large growth boosts from tax cuts, had fore­cast – which is to say, well below the bud­get of­fice’s base­line.

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