Final deficit figures show GOP Tax Scam keeps blowing holes in budget

I had wondered when we’d see the year-end budget figures from the Trump Administration, because the Fiscal Year ended nearly 4 weeks ago, and last year’s final total came out on October 15.

Well they finally dumped it on Friday, and while the number was not surprising, it was still huge.

The U.S. Treasury on Friday said that the federal deficit for fiscal 2019 was $984 billion, a 26% increase from 2018 but still short of the $1 trillion mark previously forecast by the administration.

The gap between revenues and spending was the widest it’s been in seven years as expenditures on defense, Medicare and interest payments on the national debt ballooned the shortfall…

Annual deficits have nearly doubled under President Donald Trump’s tenure notwithstanding an unemployment rate at multidecade lows and better earnings figures. Deficits usually shrink during times of economic growth as higher incomes and Wall Street profits buoy Treasury coffers, while automatic spending on items like food stamps decline.

Two big bipartisan spending bills, combined with the administration’s landmark tax cuts, however, have defied the typical trends and instead aggravated deficits. The Congressional Budget Office projects the trillion-dollar deficit could come as soon as fiscal 2020.

Most of the numbers match up with what we saw from the CBO’s estimate from 3 weeks ago, so there isn’t much to discuss further on that subject. But I do want to reiterate how far away we are from what was projected before the GOP Tax Scam was passed into law at the end of 2017.

For 2019, tax receipts were up a bit vs 2018. But it wasn’t the GOP Tax Scam “paying for itself”, but instead mostly due to payroll taxes for Social Security and Medicare. Oh, and also because of an increase in corporate revenues that doesn’t come close to the 40% drop we had in 2018 due to the Tax Scam, and an increase in tariff revenue that still barely covered the $28 billion we are giving to farmers affected by tariffs.

Change in revenue , FY 2019
Payroll Taxes +$72.4 billion
Individual Income Taxes +$34.3 billion
Customs Duties/Tariffs +$29.5 billion
Corporate Income Taxes +$25.5 billion
Excise Taxes +$5.0 billion
Estate Taxes -$6.3 billion
Miscellaneous -$25.9 billion
TOTAL CHANGE +$133.4 BILLION (+4.0%)

This is a good explanation of the decline in projected revenues that has resulted from the Tax Scam.

Here is how actual FY19 revenue came in compared to the pre-Trump tax cut projections (CBO, June 2017):

Corporate tax: -33%
Estate tax: -33%
Individual income tax: -6%
Payroll tax: + 1%
Customs duties (tariffs): +81%

Total: -6% https://t.co/D2oSHlkj1s

— Seth Hanlon (@SethHanlon) October 25, 2019

If you compare to the Trump Administration's estimates from July, we actually came up short on estimated revenues by $10.2 billion, and the reason why is hilarious - because the Trump Administration overestimated tariff revenues by nearly $11 billion! While spending was significantly up in 2019 (a boost to GDP that Republicans don’t want to talk about), we still spent $26.4 billion less than anticipated, so we snuck under the $1 trillion estimate by $16.25 billion.

It's worth remembering that the CBO told the Joint Committee on Taxation in December 2017 that the Tax Scam would decrease revenues by nearly $436 billion in its first 2 years. And then CBO followed up this month by saying tax revenues ended up falling even further than that.

Total receipts in 2018 were $8 billion (or 0.2 percent) lower than what CBO initially projected, and receipts in 2019 were $28 billion (or 0.8 percent) lower. In percentage terms, the differences between actual and projected receipts were larger for individual and corporate income tax receipts than for total receipts (see Table 1). Since April 2018, CBO has published four subsequent revisions to its revenue projections; together, those revisions reduced projected revenues over the 2018–2028 period by $700 billion (or 1.5 percent).

Revisions of that size are not unusual. Revenue projections are inherently uncertain, and actual outcomes would differ from CBO’s projections even if no changes were made to current law. In analyzing its baseline projections of revenues since 1982, CBO found that the mean absolute error—that is, the average of all errors without regard to whether they are positive or negative—was 2.2 percent for forecasts for the current year, 5.0 percent for projections for the subsequent fiscal year, and 10.1 percent for projections for the sixth year of the projection period.

The extent to which the relatively small errors in projected receipts for 2018 and 2019 and the downward revisions to projected receipts over the following decade were influenced by the effects of the 2017 tax act’s being larger or smaller than CBO projected or by other factors is not known. Those revisions to projected receipts reflect various factors, including revised economic projections, changes in tax modeling methodologies, and the incorporation of recent data on tax collections. The revisions do not reflect an explicit reassessment of the effects of the 2017 tax act, but they may be influenced by how those effects have unfolded over the past two years. For example, although CBO has revised downward projected receipts for 2020 by $58 billion (or 1.6 percent), largely to reflect weakness in recent tax collections, the extent to which those lower-than-expected receipts reflect the effects of the 2017 tax act or unrelated underlying factors is not known.

The effect of the Tax Scam may be "not known", but what we can do is compare what the CBO thought we would see in April 2018, and what has happened since. And as you can see, corporate revenues in particular have dropped even further than they thought it would after the Tax Scam's giveaways took effect.

In fact, between income, payroll and corporate taxes, there was a gap of more than $60 billion in the recently-completed Fiscal Year. That would have taken the total cost of the Tax Scam to nearly $500 billion in the last 2 years. But the shortfall was reduced to $28 billion (and $464 billion total) due to a significant increase in tariffs and other revenues that wasn’t predicted at the time. And that choice has come with its own set of economic issues, along with farm subsidies that spent almost all of that extra tariff revenue.

The CBO adds that we still need more information to get a complete picture of the fiscal effects of the Tax Scam, as we still are sorting out the last details of the first year under the new law.

Although some preliminary information has become available from tax returns filed for the 2018 tax year—the first returns that reflect most of the changes made by the tax act—that information does not clearly indicate whether the tax act’s effects differed from those CBO estimated in April 2018. Indeed, tax returns for 2018 for those who received extensions were filed only within the past two weeks. Detailed information from 2018 tax returns is expected to become available in late 2020. Assessing the tax act’s effects on receipts will not be possible even then, however, because it is not possible to disentangle changes in revenues caused by the tax act from changes driven by other factors, such as the effects of trade barriers that might have reduced economic growth and thus held down tax receipts. CBO will continue to monitor data to assess the effects of the 2017 tax act and to update its projections of tax revenues under current law.

So stay tuned, as we might still see more effects of the GOP Tax Scam in next month's revenue figures. Given that it involves filing extensions of 2018 taxes, it might reduce the total cost, as it would make sense that many of the extenders would be people having to write their checks to the IRS after under-withholding due to Trump Admin policy. But whatever revenue that might be made up in October won't come close to the losses in revenues that we've seen in the first 21 months of the Tax Scam, and with the economy slowing in 2019, that gap might grow again as people adjust and file in this winter.