News Story

Media, Left Blame Deficit On People Keeping More Of What They Earn

They don’t like tax cuts but do like government spending

Ever since the Tax Cuts and Jobs Act of 2017 was signed into law last December, the mainstream media and some academic economists have blamed an uptick in the annual federal deficit on the tax cuts. Other economic experts taking a more holistic view argue that blaming the tax cuts isn’t telling the whole story.

In October, The New York Times reported that the federal deficit rose to $779 billion in 2018 “in large part by a sharp decline in corporate tax revenues after the Trump tax cuts took effect.”

Federal tax receipts are expected to be up $24.2 billion in 2018 over the previous year, according to the Office of Management and Budget, and federal spending is projected to rise $191.4 billion.

NPR, Vox, The Hill and other establishment media outlets similarly reported that the tax cuts were to blame for the deficit increase, while the Trump administration attributed it to increased military spending and some other factors.

Left-leaning commentators have also pointed the finger at the tax cuts. Stan Collender, a USA Today contributor and public policy professor at Georgetown University, did so in an October op-ed titled, “The federal budget deficit is soaring, and you can blame it all on Republican tax cuts.”

“The bottom line 2018 deficit number is significant because it occurred during good economic times, when the federal deficit typically falls rather than spikes. But that's not the most important story,” Collender said. “A simple analysis of what Treasury reported shows that virtually the entire deficit increase was because the tax cut enacted in December reduced revenues substantially.”

Free-market oriented economist dispute this narrative.

Paul Winfree, who worked on the budget in the Trump administration and now serves as director of the The Heritage Foundation’s Thomas A. Roe Institute for Economic Policy Studies, said it’s possible for growth to make up for the deficit increases.

“The projected increase in the deficit is driven by lower revenues derived from the tax bill and higher discretionary spending,” he said. “However, it’s possible to grow our way out of increases in the deficit from less revenue or one-time increases in discretionary spending. The future debt problem is that the major entitlement programs, such as Medicare and Medicaid, grow faster than the government can bring in revenue regardless of what tax system you impose.”

James Capretta, a fellow at the American Enterprise Institute, wrote for RealClearPolicy in September that while the tax cuts won’t pay for themselves, “Democrats also grossly exaggerate the role of the 2017 tax law in the government’s growing fiscal problems.”

“President Trump inherited massive projected deficits, and he made them somewhat worse by cutting taxes and signing profligate appropriations bills. But the fundamental problem in the budget — the unrelenting growth of entitlement spending — long predates the Trump administration,” he said. “If the 2017 tax cut were fully repealed, the federal government would still be headed toward a fiscal crisis in the coming years because of the growth in spending on Social Security, Medicare, and Medicaid.”

James Wallner, a senior fellow at the R Street Institute, told Michigan Capitol Confidential that neither party is willing to do what it takes to fix the deficit problem, tax cuts aside.

“If you look at the deficit impact it’s going to be a result of — not just this quarter but over time — it’s going to be a result of a combination of taxes and spending,” he said. “I don’t think you can view the deficit in terms of only one of those. When you spend more and tax less, you’re going to get a bigger deficit.”

“The fundamental dynamic in Washington has not changed. We have two political parties, neither of which want to take the steps necessary to rein in the deficit and the debt,” Wallner added.