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Income Tax Revenues Are Up 9% This Year — Is Trump Tax Cut Paying For Itself?
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Supply-Side Economics: Democrats scoffed at Republicans who said the Trump tax cuts would at least partially pay for themselves through higher economic growth. But it looks like the GOP had it right all along, as revenues climb.
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The latest monthly budget report from the nonpartisan Congressional Budget Office finds that revenues from federal income taxes were $76 billion higher in the first half of this year, compared with the first half of 2017. That's a 9% jump, even though the lower income tax withholding schedules went into effect in February.
The CBO says the gain "largely reflects increases in wages and salaries."
For the fiscal year as a whole — which started last October — all federal revenues are up by $31 billion. That's a 1.2% in increase over last year, the CBO says.
The Treasury Department, which issues a separate monthly report, says it expects federal revenues will continue to exceed last year's for the rest of the 2018 fiscal year.
But wait a minute. According to Democrats, the
Trump tax cuts were supposed to blow a massive hole in the deficit.
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Last November, House Minority Leader Nancy Pelosi promised that "this thing will explode the deficit."
She also said that "after the Republicans' tax plan blows a multi-trillion-dollar hole in the deficit, they will sharpen their knives for Social Security, Medicare, Medicaid, and vital job-creating investments for middle class families."
Even now, Pelosi is sticking to her guns. In June, she called it "the deficit-exploding GOP tax scam for the rich."
All along, Republicans countered that the tax cuts would spur additional
economic growth, which would generate additional revenues, which would offset at least some of the cost of the tax cuts.
Senate Minority Leader Chuck Schumer's response to that? "It's just made-up, fake math to hide another deficit-busting tax cut to benefit the wealthiest Republicans."
Look at what's happened since the tax cuts went into effect.
Economists hiked their projections for growth this year once the tax cuts passed. The CBO changed its 2018 forecast from 2% before the tax cuts passed to
3.3% after they took effect. In that same report, the CBO admitted that this added growth would offset a significant chunk of the tax cuts.
Other Democratic big lies about the tax cuts continue to fall.
- They called the tax cuts a giveaway to the rich. But the rich will end up paying a bigger share of income taxes because of the Trump tax plan.
- They said workers wouldn't benefit, but millions got bonuses, raises, and improved benefits because of the corporate tax cuts. And real median household income is now at all-time highs.
- Democrats also said that tax cuts would do nothing about the $2.9 trillion in profits that corporations had parked overseas.
In fact, corporations are bringing hundreds of billions of dollars in profits back as a direct result of changes in the corporate tax laws — 12% of the nearly $3 trillion held overseas came back to the U.S. in just the first three months of 2018. That will mean more economic growth and additional corporate revenues.
It's the Spending, Stupid
As we have said many times in this space, the problem the country faces isn't that taxes are too low, but that
spending is too high. The CBO projects that even with the Trump tax cuts in place, taxes as a share of GDP will steadily rise over the next decade, and will be higher than the post-World War II average.
But bringing in more tax revenues doesn't help if spending goes up even faster. And that has, unfortunately, been the case, as the GOP-controlled Congress has gone on a spending spree.
Look at it this way. Tax revenues are up by $31 billion so far this fiscal year compared with last year. But spending is up $115 billion.
In other words, the
entire increase in the deficit so far this year has been due to spending hikes, not tax cuts.
Off to pack for the weekend away.