Justin Amash, a Republican congressman from Maine, isn’t typically the one you’d expect to drop the mic on Twitter, but he did so over the weekend. NBC News correspondent Kasie Hunt alleged that tax reform was responsible for the exploding deficit and Rep. Amash set the record straight in less than 180 characters.
On Sunday, Hunt tweeted an observation about Acting White House Chief of Staff Mick Mulvaney’s conversation with CNN’s Jake Tapper in which Mulvaney said that the $2 trillion deficit increase under President Trump required Democratic votes. Calling the comment “an outright falsehood,” Hunt added, “They used budget reconciliation to pass tax reform so they wouldn’t need Democrats.”
The problem for Hunt is that tax reform did not run up the deficit as Amash pointed out. “Do you believe tax reform caused a $2 trillion debt increase in one year?” he tweeted. “Tax reform is roughly $1.5 trillion over 10 years. The debt increase is almost entirely due to bipartisan discretionary spending increases and bipartisan apathy toward ever-increasing mandatory spending.”
Is this an example of he said/she said or is one of the two definitively right?
To settle the dispute, we only need to look back a few months to the end of the federal fiscal year in September. At that time The Resurgent described how the deficit had risen to the highest level in six years:
“Total outlays for 2018 were $4.108 trillion compared to $3.981 trillion in 2017. The spending increases were driven by rising interest costs paid on a greater amount of federal debt as well as increased military spending, which rose by six percent, and Social Security spending which increased by four percent.”
Amash is correct that the majority of the increase in the deficit was due to increased spending. Some of these costs were mandatory spending which was originally authorized by both Democrats and Republicans. The increased cost of interest on the national debt and the rising cost of entitlements like Social Security were bipartisan commitments.
So was the increase in defense spending. The Bipartisan Budget Act of 2018 increased military spending to $716 billion, an increase that President Trump celebrated as the “most amount ever.” As its name suggests, this spending bill was passed with broad support from both parties.
This isn’t to say that tax reform has no part in the deficit increases, however. Amash’s use of the qualifier “almost entirely” suggest that he agrees that tax reform did play a role. There are two components to the deficit, spending and revenue, and both were factors in the deficit.
As we discussed back in October, federal revenue for the year was almost flat despite the booming economy:
“According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.”
So, the bottom line is that revenue for 2018 did not increase while spending did. Because revenue did not go down, it isn’t accurate to say that tax reform drove the increase in the deficit. It is fair to say, however, that without decreasing corporate tax rates, there would have been more revenue and the deficit would have been smaller. In fact, even as the economy boomed, tax revenues from businesses fell by more than 30 percent. Still, if spending had not increased, the deficit would not have increased.
It’s true that cutting corporate tax rates to make them more competitive with the rest of the world was the express purpose of tax reform. It’s also true that without tax reform there might have been a downturn rather than an economic boom, especially considering President Trump’s war on trade. The loss of tax revenue, which was retained by businesses and used by many for capital investments, was a driving factor in this year’s economic growth.
The big question is whether federal revenues will recover in coming years or whether the lost tax receipts will be a bigger driver of the deficit in the future. The conservative gamble is that revenue will be replaced by economic growth. If the government takes a smaller slice of a bigger pie, it will theoretically get the same total amount of pie, if not more.
The problem for conservatives in the Trump era is that the president’s trade policy is at odds with his tax policy. While tax reform let businesses keep more of their own revenues, tariffs and trade restrictions mean that many businesses will have fewer revenues to keep in the first place.
Amash is absolutely correct that spending remains the biggest problem, however. The ongoing shutdown illustrates that about three-quarters of the federal government is on autopilot and does not require appropriations from Congress. It is entitlement spending that is breaking the federal budget.
Meanwhile, neither party seems concerned with the deficit. Where the Republican Party of the Obama era held a hard line on spending, current Republicans have forced a shutdown to because they don’t think the government is spending enough.