The federal government’s deficit typically shrinks during strong economic times, but the deficit is up nearly 40 percent so far this fiscal year, according to the latest Congressional Budget Office report released Friday.
Spending is up $255 billion for the first eight months of the fiscal year, the CBO said, while revenues are up only $49 billion. Corporate tax receipts are down after Republicans enacted the largest reduction in business taxes in U.S. history. Individual income taxes are basically flat this year (they are growing less than the rate of inflation). Most of the revenue increase is coming from President Trump’s tariffs and more payroll taxes, which were not cut in the tax bill.
“Revenue fell, it didn’t rise, after the tax cuts,” said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget.
Brady’s comments are a marked departure from the claim many Republicans made during the tax bill debate that the tax cuts would be fully paid for by additional economic growth that would, in turn, spur additional tax revenues for government coffers.
Numerous independent analyses concluded that the tax bill would add substantially to the U.S. debt, which currently stands at $22 trillion. CBO estimated the total cost of the Tax Cuts and Jobs Act is $1.9 trillion — after taking into account additional growth and interest payments.
“Anybody who tells you the fact the tax cuts are going to pay for themselves. It’s not true. It’s nonsense. You can use the full words of B.S.,” said House Speaker Nancy Pelosi (D-Calif). in an appearance at the Fiscal Summit shortly after Brady.
But Brady said it was important to consider whether the tax cuts were a good investment. He argued there are “very encouraging” signs that the economy is performing better after the tax cuts with strong job growth, improved wage growth and higher business investment.
“I don’t think anything could have been worse for the deficit than to stick with the old economy and stick with the tax code that was so outdated,” said Brady, who pointed to higher payroll tax collection as a sign more people are working now.
The economy expanded at a rate of 2.9 percent last year, up from 2.2 in 2017 and 1.6 in 2016, according to the Commerce Department. The White House predicts 3 percent growth for years to come, but nearly all independent economists expect growth to be closer to 2 percent for much of the next decade.
Republicans say the federal government has a spending problem and needs to scale back while many Democrats want to see higher taxes, especially on wealthier households.
The GOP-controlled Senate, the Democrat-controlled House and the White House are currently in the midst of tough negotiations on the 2020 budget plan that is supposed to take effect on Oct. 1. If no agreement is reached, automatic caps will take effect that reduce both domestic and military spending by a total of $125 billion, a scenario few want in the run up to an election year.
House Budget Chair John Yarmuth (D-Ky.) said the negotiations are “not going very well” so far.
“I don’t think there would be any problem at all getting Senate and House agreement on funding levels,” said Yarmuth, but he called the White House “unpredictable.”
The expectation is that Congress and the White House will eventually agree to lift spending even higher than it is now for both military and domestic programs. Yarmuth’s proposal would raise spending by about the same amount as the GOP tax cuts for the next decade, according to the Committee for a Responsible Federal Budget.
“There is no center of gravity to reduce spending in this town,” said Mick Mulvaney, Trump’s acting chief of staff at the Fiscal Summit.
Mulvaney, a former GOP congressman who pushed back aggressively against President Obama for smaller budgets, called Trump’s budgets the “most fiscally responsible budgets that have ever been drafted.”
But experts disagreed, pointing out that the president’s budgets relied on very optimistic growth assumptions and hefty cuts to domestic programs that were a non-starter in Congress. The budget deficit is up more than 80 percent so far this fiscal year over the same period in 2016 before Trump took office.