![]() ![]() None of these findings should be surprising. If the values were instead on a calendar year basis so that 2018 only included post-TCJA revenues, the revenue declines would be even larger. As a result, 2018 data include the three months prior to TCJA’s enactment. Predicted and Actual Revenues for 2018ĭue to data limitations, the revenue numbers in Table 1 are on a fiscal year (October 2017 – September 2018) basis. Similar patterns hold for individual income taxes and (in more extreme form) for corporate income taxes. With TCJA, revenues were only 16.4 percent of GDP. In 2017, before the tax cuts were considered, CBO estimated that total revenues would be 18.1 percent of GDP in FY2018. These effects are accentuated if one looks at taxes as a share of GDP (Table 1). ![]() In fact, payroll taxes only fell slightly – 1.7 percent – from projected values (Figure 2). For example, TCJA did not directly affect payroll taxes, so looking at payroll taxes is a good test of whether the 2017 projections for FY2018 revenues were sound. These shortfalls can’t be attributed to errors in CBO’s pre-TCJA forecast. ![]() For individual income taxes, the gap between the pre-TCJA projections and actual collections in FY2018 was $97 billion, or 5.4 percent of what was expected before the tax cuts took place. TCJA reduced income taxes for most Americans, which led to a decline in revenues relative to prior projections. Actual corporate income tax revenue in FY2018 was $135 billion lower than CBO’s projection from 2017, a decline of nearly 40 percent (almost exactly equal to the decline in the rate). TCJA reduced the top corporate tax rate from 35 percent to 21 percent. Let’s look at the taxes most affected by TCJA (Figure 2). Given that the economy grew, unless one can find some other change that caused a large revenue loss, the data imply that TCJA reduced revenues (Figure 1) – substantially. The shortfall is $275 billion, or 7.6 percent of revenues that were expected before the tax cuts took place. In fact, the actual amount of revenue collected in FY2018 was significantly lower than the Congressional Budget Office (CBO)’s projection of FY2018 revenue from January 2017-before the tax cuts were signed. The most appropriate test of the revenue impact of TCJA is to compare (a) actual revenues in FY2018 with (b) predicted revenues in FY2018 assuming Congress had not passed the legislation. Adjusted for the size of the economy, they fell even more. Adjusted for inflation, total revenues fell from FY2017 to FY2018 (Figure 1). Nominal revenues rise because of inflation and economic growth. While some TCJA supporters are touting that nominal revenues were higher in fiscal year (FY) 2018 than in FY2017, that comparison does not address the question of TCJA’s effects. Under this scenario, that “dynamic” effect would more than offset the entire “static” revenue loss of the tax cut. Revenues would rise from the combination of higher wages and hours worked, greater investment returns, and larger corporate profits. In principle, a tax cut could “pay for itself” if it spurred substantial economic growth. Senior Research Analyst (Former) - Urban-Brookings Tax Policy Center ![]()
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