The Congressional Budget Office reported on Tuesday that, with one month to go, the federal deficit for fiscal year 2019 has already topped $1 trillion. As night follows day, Trump administration critics blamed the tax cuts.
And once again, the data prove them wrong.
The CBO report says that the federal deficit reached $1.067 by the end of August. That’s up $168 billion from the comparable period in fiscal year 2018. The deficit this year will be larger than the entire budget was in 1987.
Where did the increase come from? Why, tax cuts, of course.
But the report shows that revenues climbed 3.4% so far this fiscal year – a growth rate that’s faster than GDP. Spending, however, shot up by 6.4%.
Look within the data, in fact, and you see that the tax cuts are working as promised – by accelerating economic growth, they’re at least partially paying for themselves.
Take corporate taxes. Ask any Democrat running for president and they will bemoan the tax “giveaways” to giant corporations. What they won’t tell you is that corporate tax revenues are up 5%.
In fact, corporations paid $8 billion more in the 11 months of this fiscal year than they did in the same period of fiscal year 2018. That increase alone is enough to fully fund the Environmental Protection Agency for an entire year.
What’s more, the CBO notes that corporate income tax payments through May were on 2018 activities. When you compare corporate taxes from June through August to same months last year, they are already up $18 billion – a 48% increase!
Meanwhile, individual income and payroll taxes are up $82 billion – a 3% increase over the prior year. Payroll taxes alone, which are a good indication of how well the job market is because they are automatically deducted from every worker’s wages, are up 6.4%.
Now look at the spending side of the equation.
The CBO report shows that while revenues have climbed by $102 billion, spending shot up by $271 billion.
The entire increase in the deficit over last year is due to rampant spending increases, not the Trump tax cuts.
Spending increases were across the board.
Social Security costs climbed 5.7%; Medicare, 6.5%; Medicaid, 4.6%.
Defense spending is up 7.9%, but spending on everything else in the budget has climbed by 4.5%.
Here’s the really worrisome figure: Interest payments on the national debt is up 14% over the prior year.
It should go without saying that these levels of spending growth are unsustainable. Yet instead of confronting them, lawmakers and the Trump administration are aggravating them. Entitlement reform is a non-issue at the moment. Every increase in defense spending has to be matched with a hike in spending on domestic programs. The national debt continues to explode.
And while Republicans appear indifferent to the debt explosion, Democrats are eager to more than double the size of the federal government, without saying how they’d pay for that increase let alone bring existing annual deficits down to earth.
To paraphrase Herbert Stein, something that can’t go on forever, won’t. The only question is when it won’t.
"This is the flip side (of) tax the rich, tax the rich, tax the rich. The rich leave, and now what do you do?" said New York Governor Andrew M. Cuomo on Feb. 4
After the Trump tax cut went into effect one year ago, we predicted that the Trump tax reform would supercharge the national economy but could cause big financial problems for the highest-tax states: New Jersey, Illinois, Connecticut, and New York.
The capping of the state and local tax deduction at $10,000 raised the highest effective state tax rates by about 66% (for example, in New York City, the rate on millionaires rose from about 8% to 13.3%). In New Jersey, the highest rate has risen from 7.5% to 12.75%.
Now, we have Andrew Cuomo conceding that the trend of rich people moving out of New York has caused the loss of $2.3 billion of tax revenue in Albany’s coffers. Cuomo called this tax change “diabolical.” We think it was a matter of tax fairness. No longer do residents of low-tax states have to pay higher federal taxes to support the blob of excessive state/local spending and pensions in the blue states.
As we predicted, the wealthy are fleeing these states. The new United Van Lines data were just released that are a good proxy for where Americans are moving to and from. Guess what four states had the highest percentage of leavers in 2018: 1) New Jersey, 2) Illinois, 3) Connecticut and 4) New York. Even high-tax California had more Americans pack up and leave than enter.
Ironically, liberals like Cuomo who argued for years that businesses don’t make location decisions based on taxes in their states are now forced to admit that the cap on the state and local tax deduction (which primarily affects the richest 1%) is depleting their state coffers. The rich change their residence by moving for at least 183 days of the year to low taxers such as Arizona, Florida, Tennessee, Texas and Utah.
We advised Cuomo and other blue state governors to immediately cut their tax rates if they wanted to remain even semi-competitive with low-tax states. They are doing the opposite. Connecticut, Illinois and New Jersey have led the nation in tax increases on the rich over the last three years, while “progressives” have cheered them on.
Last year, legislators in Trenton went on a taxing spree, raising the income tax on those making more than $5 million a year to 10.75% — now the third-highest in the country — and then enacting a health care individual mandate tax on workers, a corporate rate increase and an option for localities to impose a payroll tax on businesses. And they are still short of cash. Idiotically, these tax hikes were passed after the state and local tax deduction cap was enacted, thus pouring gasoline on their fiscal fires.
How has this worked out for them?
In addition to New York’s fiscal woes, the deficit in Illinois is pegged at $2.8 billion (with a $7.8 billion backlog of unpaid bills), and Connecticut faces a two-year $4 billion shortfall despite three tax increases in five years.
New Jersey has a $500 million deficit this year (even after the biggest tax hike in the state’s history) and Moody’s predicts that gap will widen to $3 billion over the next five years. This is all happening at a time when most states have healthy and unexpected surplus revenues due to the Trump economic boom and the historic decline in unemployment.
A Pew study published late last year on which states are bleeding the most red ink ranked New Jersey worst, Illinois second worst and Connecticut seventh worst. New York was also in the bottom 10.
Let us state this loud and clear in the hopes that lawmakers in state capitals across the country are paying attention: The three states that have raised their taxes the most now have the worst fiscal outlook.
Worst of all, things don’t look like they are going to get better in any of these states.
Last fall, Connecticut, Illinois and New Jersey voters elected mega-rich Democratic Govs. Ned Lamont, J.B. Pritzker and Phil Murphy, who have promised to sock it to the rich — the ones who haven’t yet left. In Illinois, Pritzker would eliminate the state’s constitutionally protected flat tax so that he can raise the income tax on the rich by as much as 50%. After raising income taxes three times in the last five years, Connecticut’s legislature now wants to raise the sales tax rate. No one in any of these progressive states even dares utter the words tax cut. In just one decade, New York lost 1.3 million net residents; Illinois 717,000, New Jersey 516,000 and Connecticut 176,000. California has lost 929,000.
There is also a useful warning for the soak-the-rich crowd of progressives in Washington. If a rise in the state tax rate from 8% to 13% because of the state and local tax deduction cap can have this big and immediate negative impact, think of the economic carnage from doubling of the federal tax rate from 37% to 70% as some want to do. The wealthy would relocate their wealth and income in low-tax havens like Hong Kong, the Cayman Islands and Ireland. That would do wonders for the middle class living in those countries.
We are sticking with our warnings from last year. If the four states of the Apocalypse — Connecticut, Illinois, New Jersey and New York — do not reverse their taxing ways and choose to keep making things worse, these once very rich and prosperous states will see thousands more rich taxpayers leave. The politicians in these states just don’t seem to understand math. A soak-the-rich tax rate of 8%, 10% or even 13% on income of zero yields zero income when the wealthy leave the state. Cuomo was right: The bleak outlook for the four states of apocalypse is “as serious as a heart attack.”
By Harris Alic • Washington Free Beacon
Small business owners are pushing back against Democratic mischaracterizations of President Donald Trump’s signature Tax Cuts and Jobs Act.
More than a year after the legislation went into effect—slashing personal and corporate tax rates across the board—the focus has shifted from worker bonuses and wage increases to shrinking tax refunds. The latter, resulting from a decrease in the level of taxes paid throughout the year and changes to the Internal Revenue Service’s withholding formula, has increasingly become fodder for Democrats eager to portray the cuts as a “scam” to benefit the wealthy.
In reality, the issue is more complicated, as Alfredo Ortiz, the president of the Jobs Creator Network (JCN), told the Washington Free Beacon. Ortiz’s group, which represents a diverse coalition of small businesses and bills itself “as the voice of Main Street,” has been working to educate voters on the benefits of the tax cuts ahead of the April 15 IRS filing deadline. JCN believes that if Democrats are allowed to win the debate over tax refunds, it will make it easier for the party to eventually push for a full repeal of the Trump tax cuts at a later date.
Taxes: One of the talking points Democrats and the left often drag out to justify reversing the Trump tax cuts is that the U.S. is “undertaxed” compared with other nations. A new study shows that’s false.
Everyone from House Minority Leader Nancy Pelosi to Senate Democratic Leader Chuck Schumer to socialist independent Bernie Sanders says they would reverse the tax cuts. It’s premised not on the idea that we spend too much, but that working Americans keep just too dang much of their own money.
The problem is, as a new OECD study shows, that’s not true.
The OECD, the think tank for the world’s wealthiest nations, looked at 12 major countries in Europe, the Americas and Asia. The U.S. finished third in terms of taxes at 18.4% of income. Continue reading
Taxes: There’s a growing disconnect between the economic benefits spinning off the Republican tax cuts and the poll numbers. Is the public going sour of them? Or is this just more wishful thinking on the part of Democrats and the liberal press?
Just the past week saw three more examples of the tax cuts’ benefits.
Item 1: Kroger announced that it was accelerating wage hikes, increasing the company’s 401(k) match, enhancing benefits, and expanding employee discounts. All, it said, thanks to the Republican tax reforms. Kroger joins more than 500 other companies who’ve extended bonuses, wage hikes, or improved benefits to more than 4 million workers in the wake of the law’s sharp reduction in corporate tax rates.
Item 2: A Gallup poll found that the public thinks the tax code is more fair today than it was before the Republican tax cuts took effect. Just 42% now say middle income families pay too much in income taxes, down from 51% last year. And 26% Continue reading
The latest monthly Treasury report on taxes and spending shows that gross tax receipts in February were $1.4 billion higher than the year before. Weren’t the Republican tax cuts supposed to explode the deficit?
According to the report, the government took in $238.2 billion in taxes in February. The year before, tax revenues were $236.8 billion.
For fiscal year 2018, which started last October, taxes are up $50.5 billion compared with the same months last year, and are at a record high level for this five-month span.
The report does show that net receipts were lower in February compared with last year, but the main reason is that individual income tax refunds jumped $13.3 billion, while corporate tax refunds went up $4 billion, neither of which is the result of the tax cuts that took effect in January.
Even so, net receipts are up by $29.6 billion for the current fiscal year — a 2.4% increase — compared with the same period last year. That’s also a record high. (See nearby chart.)
Does this mean tax cuts are “paying for themselves”?
Not exactly. Income taxes collected in February were down $2.5 billion from last year — reflecting the new withholding tables. Corporate income tax collections, however, were essentially flat.
But remember, income taxes are hardly the only source of revenue for the federal government. And a faster-growing economy means more money pouring in from these other sources.
Payroll taxes, for example, are dependent on the number of people working and their wages. In February, the economy added 313,000 jobs, unemployment levels are now at or near record lows, and wages are climbing.
As a result, payroll taxes brought in $1.5 billion more in February than they did last year, and are up $11.4 billion this fiscal year. Federal excise taxes and customs duties are up $3.8 billion and $1 billion, respectively, this fiscal year.
What these numbers do show is that all the hand-wringing about the impact of the tax cuts on federal deficits was based on wildly exaggerated estimates of revenue losses, which failed to take into account the fact that a faster growing economy would offset at least of the lost revenue. That’s a point we’ve made repeatedly in this space.
In contrast, tax hikes almost always bring in less revenue than expected, because they dampen economic growth.
Democrats once understood this truism. It was JFK, after all, who said in 1962 “it is a paradoxical truth that tax rates are too high today and tax revenues are too low — and the soundest way to raise revenues in the long run is to cut rates now.”
Today’s Democrats, in contrast, uniformly opposed the Trump tax plan, and are now pushing to repeal most of it so they can spend an additional $1 trillion on government make-work infrastructure projects.
Their plan has no chance of being enacted, but at least voters will have a clear choice this November.
by Alfredo Ortiz • Real Clear Politics
Pending tax cut legislation will eliminate the federal income tax burden on the average American family earning $59,000 a year. It will halve the tax bill for the average family earning $75,000. And it will allow the overwhelming majority of small businesses to protect nearly one-quarter of their income from taxes.
That’s the bottom line of the tax bill that needs to be said up front.
Given the critical media coverage of the bill, these benefits have largely gone overlooked. Rather than reporting on its provisions to double the standard deduction, double the child tax credit, and eliminate the 15 percent tax bracket in favor of a vastly expanded 12 percent rate, media coverage has claimed the bill is a gift to the rich. Rather than reporting on the new 23 percent tax deduction for small businesses earning less than $500,000 a year, media
coverage has claimed the bill is a budget buster.
That’s a shame because these benefits would bring long overdue relief to hardworking taxpayers who have borne the brunt of the slow growth Obama economy from which the country is finally emerging. Continue reading
By Glenn Kessler • The Washington Post
“On average, middle class families earning less than $86,000 would see a tax increase under the Republican ‘tax reform’ plan.”
— Sen. Kamala Harris (D-Calif.), in a tweet, Oct. 27
“The average tax increase on families nationwide earning up to $86,100 would be $794.00”
— Sen. Robert P. Casey Jr. (D-Pa.), in a tweet, Oct. 24
“Under GOP plan, U.S. families making ~$86k see avg tax increase of $794.”
— Sen. Jeff Merkley (D-Ore.), in a tweet, Oct. 24 Continue reading
By Newt Gingrich • Fox News
The left-wing media and the elites never seem to tire of being wrong.
Remember in May when President Trump said his policies would spur the U.S. gross domestic product (GDP) to grow at a rate of 3 percent or higher? The so-called experts insisted that it was unrealistic, highly unlikely, and probably impossible.
Some of these experts suggested 3 percent growth could only happen if our immigrant population doubled over a decade or the nation went to a six-day work week. They said even if unemployment fell to zero, we still wouldn’t get close.
Imagine their surprise then when the Commerce Department announced on Friday that the GDP has grown at 3 percent – for the second quarter in a row. Continue reading
By Julie Kelly • National Review
Scott Pruitt, Trump’s EPA administrator, is the top target of the anti-Trump lynch mob. He’s enduring daily attack pieces in the media and threats of violence against him and his family. It’s hard to think of any cabinet member — current or former — who has been subjected to more vitriol and vilification than Pruitt, and he’s been on the job for less than a year. Suddenly, everything from overlooked Superfund sites to the Flint water crisis to “toxic” pesticides are Pruitt’s fault, which of course means he is poisoning children and destroying the planet.
According to the EPA inspector general’s office, Pruitt has received “four to five times the number of threats” that his predecessor, Gina McCarthy, did. The level of concern for Pruitt’s safety is so deep that agents are being added to his round-the-clock security detail. In a recent Bloomberg News interview, Pruitt said, “The quantity and the volume — as well as the type — of threats are different. What’s really disappointing to me as it’s not just me — it’s family.” Continue reading
By Ali Meyer • Washington Free Beacon
President Donald Trump’s tax reform framework could raise GDP by as much as 5 percent and wages by as much as 7 percent, according to a new study from Boston University economists.
“We find that, depending on the year considered, the new Republican tax plan raises GDP by between 3 and 5 percent and real wages by between 4 and 7 percent,” the economists explain. “This translates into roughly $3,500 annually more annual real take-home pay for the average American household.”
Economists believe this growth can happen due to the plan’s aim to reduce the marginal effective corporate tax rate from 34.6 percent to 18.6 percent, which they believe will grow the capital stock by 12 to 20 percent. Continue reading
By Peter Roff • USNews
Serious people are starting to wonder if tax reform can pass, largely because they’re only talking to people inside Washington.
Instead they should talk to the American people. Most of them are hungry for it. A quarter of small business owners surveyed by CNBC/Survey Money said taxes were the most critical issue they currently face. Overall it’s their No. 1 concern and, since small business is the engine of growth in the U.S. economy, that’s an important consideration.
Things have improved since Election Day 2016, but the economy is still not growing like it needs to if we are to have hope of ever paying down the national debt, now equal to about one year’s U.S. GDP. Continue reading
by Lawrence Kudlow, Stephen Moore, Arthur B Laffer, and Steve Forbes • Investor’s Business Daily
President Trump and Republican leaders in Congress must act with much more urgency and decisiveness on tax cuts.
In recent weeks the tax cut agenda seems stalled out and the delays and indecision are negatively affecting growth and the stock market. We hear that a tax plan from the White House may not come until the fall and may not even pass Congress until 2018 – if at all.
Is it any wonder that investors are getting jittery? The stock market had priced in much of the anticipated benefits to business, wages and profits, which accounts in no small part for the $3 trillion rise in equity values and the surge in business and consumer confidence after the election. Now the confidence is waning. Continue reading
By Edward P. Lazear • Wall Street Journal
President Trump’s tax plan leaves many details undefined, but there is plenty to evaluate. The administration claims its proposed changes would encourage growth and make the tax system more efficient. History suggests they will.
Less certain is the claim that the tax cuts will pay for themselves. Although budget concerns should always be paramount when cutting taxes, revenue neutrality does little to guarantee that this—or any—administration will exercise fiscal responsibility.
Most economists favor moving away from taxing capital and toward taxing consumption through value-added or sales taxes. Taxing capital squelches growth because capital is mobile and can cross borders in search of the highest risk-adjusted, after-tax return. Economists in both parties have scored the effects of eliminating capital taxation in favor of a pure consumption tax. Estimates range from a 5% to 9% total increase in gross domestic product. Continue reading
by Stephen Moore • The Washington Post
It was 40 years ago this month that two of President Gerald Ford’s top White House advisers, Dick Cheney and Don Rumsfeld, gathered for a steak dinner at the Two Continents restaurant in Washington with Wall Street Journal editorial writer Jude Wanniski and Arthur Laffer, former chief economist at the Office of Management and Budget. The United States was in the grip of a gut-wrenching recession, and Laffer lectured to his dinner companions that the federal government’s 70 percent marginal tax rates were an economic toll booth slowing growth to a crawl.
To punctuate his point, he grabbed a pen and a cloth cocktail napkin and drew a chart showing that when tax rates get too high, they penalize work and investment and can actually lead to revenue losses for the government. Four years later, that napkin became immortalized as “the Laffer Curve” in an article Wanniski wrote for the Public Interest magazine. (Wanniski would later grouse only half-jokingly that he should have called it the Wanniski Curve.) Continue reading