Fact Check: Tax cuts can reduce government revenues.

Fact Check: "Tax cuts can reduce government revenues."

What We Know

The claim that tax cuts can reduce government revenues is supported by various studies and analyses. For instance, research by William G. Gale and Peter R. Orszag indicates that tax cuts not financed by spending cuts can lead to increased federal borrowing, which ultimately reduces long-term economic growth and government revenues (Effects of Income Tax Changes on Economic Growth). Furthermore, an analysis of the Tax Cuts and Jobs Act (TCJA) found that while the tax cuts boosted investment and economic activity, they did not generate sufficient revenue to offset the substantial losses in corporate tax revenues, leading to an increased federal deficit (The Trump Tax Cuts' Benefits Were Outweighed by Lost Revenue).

Analysis

The evidence supporting the claim is robust, particularly in the context of the TCJA. The TCJA, which significantly lowered corporate tax rates, was projected to result in a decline in tax revenues that would not be compensated by increased economic activity. Studies indicated that the gains from higher wages and investment were insufficient to offset the revenue losses from the tax cuts (Did the 2017 tax cut—the Tax Cuts and Jobs Act—pay for itself?). According to a report by the Congressional Research Service, the static revenue loss from the TCJA was not expected to be significantly offset by increased revenues from higher economic output (Economic Effects of the Tax Cuts and Jobs Act).

Critically assessing the sources, the studies from Brookings and the Congressional Research Service are reputable and provide empirical evidence based on economic modeling and historical data. The Associated Press article also draws from credible academic research, indicating a consensus among economists regarding the negative impact of unfinanced tax cuts on government revenues (The Trump Tax Cuts' Benefits Were Outweighed by Lost Revenue). However, it is important to note that the dynamic scoring of tax cuts can be contentious, as it involves assumptions about future economic growth that may not materialize (FACT CHECK: Do Tax Cuts Grow The Economy? - NPR).

Conclusion

The verdict on the claim "Tax cuts can reduce government revenues" is True. The evidence clearly indicates that tax cuts, particularly those not accompanied by equivalent spending cuts, can lead to a decrease in government revenues due to increased deficits and insufficient growth in economic activity to compensate for the losses. The analyses of the TCJA and other tax policies support this conclusion, highlighting the complexities and potential pitfalls of tax cuts in terms of fiscal health.