Washington, D.C. — The tax legislation signed by President Donald Trump in December 2017 significantly reduced federal revenues, particularly benefiting the wealthiest Americans. Following these tax cuts, federal revenues dropped sharply and remain below projections made prior to their enactment. An issue brief from the Center for American Progress (CAP) provides a new analysis of economic trends and federal revenues, explaining how the Trump tax cuts' low revenues hinder investment in communities.
Key findings from the issue brief include:
- Federal revenues are below levels projected before the tax law's enactment, whether measured as a percentage of the economy, adjusted for inflation, or adjusted for both inflation and growth in the adult population.
- Revenues as a percentage of the economy are notably low given economic strength. Between 1986 and the Bush tax cuts in 2001, every year with an unemployment rate below 5 percent saw revenues exceed 19 percent of gross domestic product (GDP). Since then, only one out of nine years with such low unemployment had revenues exceeding 19 percent of GDP, which was an outlier due to COVID-19 recovery.
- Increases in nominal revenues are attributed to COVID-19 policies rather than the Trump tax cuts. Other politicians have noted increases in nominal revenues relative to pre-tax cut projections; however, much of this is due to COVID-19 policies, expiration of business provisions within the tax law that proponents wish to extend, and higher-than-expected inflation. In 2023, nominal revenues were 6 percent below pre-pandemic projections after adjusting for inflation.
“The bottom line is the Trump tax cuts were responsible for historically low revenue as a percentage of GDP. These tax cuts were a handout to the wealthiest Americans and failed to deliver on its promises to low-income and middle-class Americans,” said Bobby Kogan, senior director of federal budget policy at CAP and co-author of the issue brief. “With a significant portion of the Trump tax cuts set to expire at the end of 2025, Congress has an opportunity to improve the tax code to make it fairer and to raise revenues to invest in American families and communities.”
Read the issue brief: “The Trump Tax Cuts Led to Record-Low, Not High, Revenues Outside of a Recession” by Bobby Kogan, Brendan Duke, and Jessica Vela.
For more information or to speak with an expert, please contact Sarah Nadeau at [email protected].
