YES, the GOP Tax Scam exploded the deficit. And NO, more cuts aren't the answer

After a bit of a delay, the US Treasury finally released their year-end Statement for the 2018 Fiscal Year on Monday. And media relayed the Statement’s confirmation that the US’s budget deficit had blown back up to the highest levels in 6 years.

The U.S. budget deficit grew to $779 billion in Donald Trump’s first full fiscal year as president, the highest since 2012 amid tax cuts and spending increases.

The budget gap for the 12 months through September was 17 percent wider than the same 12-month period a year earlier, as spending rose 3.2 percent and revenue gained just 0.4 percent, according to a Treasury Department report released Monday. The deficit as a share of total economic output was 3.9 percent in fiscal 2018, up 0.4 percentage point from the prior year. The government’s fiscal year runs from Oct. 1 to Sept. 30.

What’s odd about this is that the final deficit figures aren’t as bad as the $898 million that we were in the hole at the end of August, and aren’t even as bad as the $849.1 billion deficit the Trump Administration projected 3 months ago.

So what happened at the end of the Federal Fiscal Year? Part of this is due to quarterly payments by corporations and individuals in September, which bumps up revenues, and as this month's report from the Congressional Budget Office noted, the calendar also worked to reduce the deficit for this year.

Outlays in September of both years were affected by shifts in the timing of certain federal payments that otherwise would have been due on a weekend or a holiday; those shifts reduced outlays in September 2018 by $71 billion but increased them in September 2017 by $44 billion. If not for those shifts, the surplus in September 2018 would have been just $44 billion—$7 billion less than the surplus in September 2017.

Add $71 billion to this year’s $779 billion deficit, and you come up with $850 billion, which would be 27.6% higher than last year’s $666 billion, and nearly 50% higher than what the CBO was projecting 16 months ago.

But I see that expenses went up by 3.2% in 2018, and exceeded $4.1 trillion, so is it high spending that caused the deficit to grow so much?

No. First of all, more than ½ of the 2018 increase in spending is due to taxpayers shelling out $64.6 billion more in interest on the debt during the first year of Trump/GOP control of DC.

And second of all, as “Budget Guy” Stan Collender notes in USA Today, the higher spending was expected in prior projections, but lower revenues were not.

The Congressional Budget Office estimated fiscal 2018 revenue would be $3.5 trillion under the laws that were in place before President Donald Trump signed the GOP tax cut bill. The actual amount Treasury reported Monday was $202 billion less. That $202 billion would have more than covered the $127 billion in extra spending in 2018.

This comparison, to tax revenues that were expected had the laws stayed the same, unambiguously shows that virtually all of the federal deficit increase that occurred from 2017 to 2018 was because of the new cuts in corporate and individual taxes. Had the tax changes not been enacted, the federal deficit in 2018 would have dropped to well below $600 billion, rather than rising to close to $800 billion.

….Compared with the CBO pre-tax bill baseline, 2019 revenues will be $263 billion below what they would have been if rates had stayed the same. Treasury’s projected 2019 deficit would be just above $800 billion rather than close to $1.1 trillion.

That reality is especially obvious when you compare the year-over-year numbers for 2017 and 2018, and do a “before and after” with the Tax Scam. This can be done by looking at Federal Fiscal Year 2018 into income tax withholdings before Feb 2018 (when the tables were changed to reflect the lower tax rates) and after then, and also comparing corporate taxes under the 35% rates in 2017 and the 21% rates in 2018.

Individual Income tax withholding, FFY 2018 vs FFY 2017
Oct 2016 – Jan 2017 $447.599 billion
Oct 2017 - Jan 2018 $496.984 billion (+11.0%)

Feb - Sept 2017 $861.667 billion
Feb – Sept 2018 $828.122 billion (-3.9%)

Corporate Income tax, FFY 2018 vs FFY 2017
Oct 2016 – Dec 2016 $75.731 billion
Oct 2017 – Dec 2017 $62.052 billion (-18.4%)

Jan - Sept 2017 $211.317 billion
Jan – Sept 2018 $142.681 billion (-32.5%)

Both types of taxes had significant declines once the Tax Scam hit, and that looks even worse when you consider that there’s been inflation and profit/job growth over those 12 months that should grow revenue even with nothing else changing.

So what did the top Senate Republican say in reaction to the final deficit numbers today? An out-and-out lie that gets the problem backward.

Senate Majority Leader Mitch McConnell blamed rising federal deficits and debt on a bipartisan unwillingness to contain spending on Medicare, Medicaid and Social Security, and said he sees little chance of a major deficit reduction deal while Republicans control Congress and the White House.

“It’s disappointing, but it’s not a Republican problem,” McConnell said Tuesday in an interview with Bloomberg News when asked about the rising deficits and debt. “It’s a bipartisan problem: unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future.”

Go back to the Treasury Statement, and you’ll see that the amount spent by the Center for Medicare and Medicaid services only increased by $23.6 billion (1.6%), and while some of that is calendar-related, the increase as of the end of July was only 3.6%, so that’s hardly unsustainable. Likewise, Social Security only had its spending go up by 3.9% (just over $39 billion). The increases in those areas were less than the 5.6% increase we had in the military last year, or the 14.1% increase in interest on the debt. Blaming the higher deficit on earned benefits is a dog that won’t hunt.

The real reason we have the odd quandary of a growing deficit in a growing economy is because of the GOP’s Tax Scam that McConnell helped to shove through Congress despite significant public opposition. This has caused a significant revenue hole to appear that has not been filled by economic growth, like what’s happened in pretty much any GOP tax cut over the last 40 years.

Until the Tax Scam is buried and reversed, we will be racked with chronic budget deficits, higher debt expenses, and higher interest rates to encourage others to give Uncle Sam the money to keep paying the bills. Or we may be forced to cut things that actually work and help people - which was absolutely the long-range plan that Koch Boys like McConnell and Paul Ryan had in mind when they put in the Tax Scam. And if this country keeps those bagmen in power, you can bet there will be a regressive Tax Scam 2 to finish off the country’s fiscal health as we know it.