The tax legislation signed by President Donald Trump in December 2017 significantly reduced federal revenues, with the largest tax cuts benefiting the wealthiest Americans. Following these tax cuts, federal revenues fell dramatically, as projected by the Joint Committee on Taxation (JCT) and Congressional Budget Office (CBO), and remain below pre-enactment projections.
An analysis of economic trends and federal revenues indicates:
- Federal revenues remain below levels projected before the tax law enactment, whether measured as a percentage of the economy, adjusted for inflation, or adjusted for both inflation and adult population growth.
- Revenues as a percentage of the economy are notably low given economic strength. From 1986 to 2001, years with unemployment rates below 5 percent saw revenues exceed 19 percent of GDP. Post-2001, only one out of nine such years saw revenues exceed this threshold due to COVID-19 recovery.
- Nominal revenue increases relative to pre-tax cut projections reflect COVID-19 policies, expiring business provisions proponents wish to extend, and higher-than-expected inflation. In 2023, nominal revenues were 6 percent below pre-pandemic projections after adjusting for inflation.
As Congress debates future legislation regarding the Trump tax cuts, it should aim for revenue-positive outcomes to better invest in communities.
To determine a law's impact accurately, comparing actual outcomes with hypothetical scenarios absent the law is essential. The CBO and JCT estimated in 2017 that Trump's tax legislation would reduce federal revenues by $1.6 trillion through 2025 compared to non-enactment scenarios. Recent estimates indicate higher costs for extending these cuts than initially projected.
A comparative approach shows that June 2017 CBO projections estimated an 18.0 percent GDP revenue share for 2023; however, actual figures reached only 16.5 percent. Projections for fiscal years 2024 and 2025 also show lower-than-expected revenue shares under current forecasts.
Revenues today are even lower than prior analyses suggest due to several factors including progressive taxation structures and economic growth expectations unmet due to repeated expensive tax cuts enacted by Congress.
Politicians have cited nominal revenue increases since the Trump tax cuts' enactment as evidence of their success; however, this fails to account for temporary pandemic-related factors like deferred payroll taxes and shifted income reporting incentives that inflate post-pandemic figures misleadingly.
Comparisons using nominal versus inflation-adjusted figures reveal discrepancies: while nominal revenues slightly exceeded CBO’s pre-pandemic projections by less than two percent in recent years after adjusting for inflation they were actually six percent lower.
The analysis concludes that Trump’s tax cuts significantly reduced federal revenues against historical standards despite high employment levels. With major portions set to expire at end-of-year next year (2025), Congress has an opportunity to revise these measures ensuring fairness alongside enhanced investment capacity into American families/communities.
Acknowledgements include Jean Ross Madeline Shepherd Emily Gee for suggestions David Correa research assistance utilizing GDP price index data presented chained dollars noninstitutionalized civilian population ages sixteen-plus per CBO projections rebased GDP forecasts aligning latest fiscal values respective baselines used analyses herein.
