Fact Check: "Tax cuts can impact government revenue and deficit levels."
What We Know
The claim that tax cuts can impact government revenue and deficit levels is supported by various analyses of the Tax Cuts and Jobs Act (TCJA) enacted in December 2017. According to a report by the Brookings Institution, the TCJA was expected to spur economic growth that could potentially offset the revenue losses from tax cuts. However, the actual data demonstrated that tax revenues collected in fiscal year 2018 were significantly lower than projections made prior to the tax cut. Specifically, the revenue shortfall was approximately $275 billion, or 7.6% below expectations, indicating that the TCJA substantially reduced revenues despite economic growth in that year.
Further analysis from the Congressional Research Service corroborates this by stating that the tax cuts contributed to an increased deficit, necessitating greater government borrowing, which in turn could crowd out private investment. The Tax Policy Center also noted that the TCJA was projected to add between $1 to $2 trillion to the federal debt due to the resulting deficits.
Analysis
The evidence presented indicates a clear relationship between tax cuts and their impact on government revenue and deficits. The Brookings Institution highlighted that while nominal revenues increased in 2018, this was largely due to inflation and economic growth rather than the TCJA's effectiveness in generating additional tax revenue. The analysis emphasized that when adjusted for inflation and GDP, revenues actually fell post-TCJA.
Moreover, a study by researchers from Harvard, Princeton, and Chicago Booth found that while the TCJA did boost investment and wages, these gains were insufficient to compensate for the substantial losses in corporate tax revenues, which ultimately increased the federal deficit (Chicago Booth Review). This aligns with the findings from the Congressional Budget Office, which estimated a significant increase in the federal deficit attributable to the tax changes introduced by the TCJA.
The reliability of these sources is high, as they include analyses from reputable institutions such as the Brookings Institution and the Congressional Research Service, which are known for their rigorous research methodologies. Their findings are supported by empirical data and reflect a consensus among economists regarding the fiscal implications of the TCJA.
Conclusion
Verdict: True
The claim that tax cuts can impact government revenue and deficit levels is true. The evidence indicates that the TCJA led to a substantial decrease in tax revenues and an increase in the federal deficit, contrary to the assertions made by its proponents that it would pay for itself through economic growth. The analysis of actual revenue data post-TCJA demonstrates a clear negative impact on government finances.
Sources
- Did the 2017 tax cut—the Tax Cuts and Jobs Act—pay for itself? Brookings Institution
- Economic Effects of the Tax Cuts and Jobs Act Congressional Research Service
- The Trump Tax Cuts' Benefits Were Outweighed by Lost Revenue Chicago Booth Review
- New Analysis: Senate Tax Bill Drives Deficit Reduction by Igniting Economic Growth Senate Finance Committee
- PDF Preliminary Analysis of the Distributional Effects of the One Big ... CBO
- Effects of Income Tax Changes on Economic Growth Brookings Institution
- How did the TCJA affect the federal budget outlook? - Tax Policy Center Tax Policy Center
