In the first two months of the new fiscal year, tax revenues are up. But so is the deficit. Why? Because spending continues to outpace revenues. So why do tax cuts keep getting blamed?
The latest monthly budget report from the Congressional Budget Office shows the deficit jumping $102 billion in just the first two months of the new fiscal year.
That sure looks like the deficit is “soaring,” as one news outlet claimed. But as the CBO makes clear, almost all that deficit increase was the result of quirks of the calendar. Depending on where weekends fall, significant sums of spending can get shifted into different months.
A true apples-to-apples comparison, the CBO says, shows that the deficit climbed by just $13 billion.
So, no, the deficit is not soaring.
Nor are tax cuts to blame for the relatively small increase so far this year.
In fact, the CBO report shows that overall tax revenues climbed by $14 billion in the first two months of the year, compared with the same months last year. Which means they continue to hit new highs.
The CBO report shows that combined income and payroll taxes were the same in the first two months of the new fiscal year as they were last year. That’s even though far less money was withheld from paychecks thanks to the Trump tax cuts.
It also found that corporate income taxes went up by $5 billion. That’s despite the “massive corporate tax giveaway” that Democrats want to repeal.
Why are these revenues flat or up? Simple: The tax cuts help spur accelerated economic growth, which create jobs and spark income gains. More workers and higher wages mean more tax revenues. On the corporate side, a bigger economy means more profits, which even when taxed at lower rates can produce more revenue. This is exactly what advocates of Trump’s pro-growth tax cuts said would happen.
Meanwhile, revenue from “other sources” climbed by $8 billion. (To be clear, at least some of that $8 billion came from the re-imposition of ObamaCare’s nefarious tax on insurance premiums, which Congress had suspended the year before.)
But while revenues climbed by $14 billion, spending in the first two months of the new fiscal year climbed by $27 billion.
Where did the spending hikes come from? CBO says $8 billion was from Social Security, $5 billion from interest on the debt, $9 billion from military spending, and $4 billion from “other.”
As we have said multiple times, the deficit problem is not the result of too little taxes, but too high spending. Unfortunately, Republican blew the opportunity over the past two years to rein in federal spending, particularly on entitlements.
No matter what the budget numbers actually show, it’s a virtual guarantee that Democrats will blame tax cuts for the rising deficit when they take control of the House next year. And they will put relentless pressure on Trump and congressional Republicans to “compromise” on tax hikes as part of some grand budget agreement.
That’s one deal Trump should never make.