Fact Check: Tax cuts can lead to reduced government revenues.

Fact Check: "Tax cuts can lead to reduced government revenues."

What We Know

The claim that tax cuts can lead to reduced government revenues is supported by various studies and analyses. For instance, a paper by William G. Gale and colleagues discusses how tax cuts, particularly when not offset by spending cuts, can lead to increased federal borrowing and potentially reduce long-term economic growth (Effects of Income Tax Changes on Economic Growth). The Tax Cuts and Jobs Act (TCJA) of 2017 is a pertinent example, where it was noted that actual revenues collected in FY2018 were significantly lower than projections made prior to the tax cut, indicating a substantial reduction in revenues (Did the 2017 tax cut—the Tax Cuts and Jobs Act—pay for itself?).

Additionally, a report on the economic effects of the TCJA found that while there were some positive impacts on investment and wages, these were not sufficient to offset the substantial losses in corporate tax revenues (The Trump Tax Cuts' Benefits Were Outweighed by Lost Revenue).

Analysis

The evidence supporting the claim is robust, particularly in light of the TCJA's outcomes. The Congressional Budget Office (CBO) projected that revenues would be significantly higher than what was actually collected post-TCJA, with a shortfall of approximately $275 billion, or 7.6% of expected revenues (Did the 2017 tax cut—the Tax Cuts and Jobs Act—pay for itself?). This discrepancy suggests that the tax cuts did not stimulate enough economic growth to compensate for the revenue losses.

Moreover, analyses indicate that tax cuts can lead to budget deficits if not matched by spending reductions. The paper by Gale et al. emphasizes that while tax cuts can incentivize economic activity, they may also lead to a reduction in national savings and an increase in interest rates when financed through debt, ultimately harming long-term growth (Effects of Income Tax Changes on Economic Growth).

Critically, while some sources argue that tax cuts can stimulate growth, the consensus in the literature reviewed suggests that the immediate effect tends to be a reduction in government revenues, especially when the cuts are not offset by equivalent spending cuts (Economic Effects of the Tax Cuts and Jobs Act).

Conclusion

The verdict on the claim "Tax cuts can lead to reduced government revenues" is True. The evidence indicates that tax cuts, particularly those not accompanied by spending reductions, can and often do result in decreased government revenues, as demonstrated by the outcomes of the TCJA and supported by various economic studies.