Congress’ Budget Team Can’t Tell if Tax Cuts Caused Revenue Drop

(Bloomberg) -- The federal government is taking in less money but can’t tell if the shortfall is tied to the 2017 tax cuts or other factors like trade uncertainty, the Congressional Budget Office said in a letter.

Total tax receipts in 2019 were down $28 billion -- or about 0.8% lower -- than initial projections, according to the CBO. The revenue decline isn’t an “explicit” evaluation of the 2017 tax cuts, but it may have been influenced by those changes, the letter said.

“In short, revenues in fiscal years 2018 and 2019 were a bit lower than the Congressional Budget Office anticipated in early 2018, but whether that result is related to the effects of the tax act is unknown,” the CBO said Monday in a letter to Senator Mike Braun, an Indiana Republican who had asked for the analysis.

The cost of the tax cuts -- and whether or not the resulting economic growth will pay for them -- has been a key area of disagreement for Republicans and Democrats in the almost two years since the law was passed. The Treasury Department has released analysis showing that the law would pay for itself over a decade, but independent projections haven’t backed up those calculations.

The CBO estimates that the tax law -- which cut the corporate rate to 21% from 35% and reduced taxes for individuals -- will cost $1.9 trillion over a decade, after accounting for macroeconomic effects and debt-serving costs. It won’t be clear how close Treasury’s projections are until the end of the 10-year budget window, which closes in 2027.

“It’s always been pretty clear that the tax cuts weren’t going to pay for themselves,” said Marc Goldwein, senior vice president for the Committee for a Responsible Federal Budget. “CBO can’t say what I say: the tax cuts unquestionably cost revenue.”

The CBO letter follows the release of Treasury Department data last week showing the U.S. budget deficit widened to almost $1 trillion in the latest fiscal year. Larger annual budget deficits for four straight years have put the shortfall under President Donald Trump on pace to expand to historic levels.

In his first year in office, Trump not only cut taxes, but also increased government spending.

©2019 Bloomberg L.P.

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