We seem to be reliving the 1980s, specifically when Ronald Reagan’s tax cuts destroyed the caterwauling of Democrats that it would cause huge deficits. Today’s Democrats claimed the same thing about the Trump tax cuts. But just as Reagan’s tax cuts grew the economy and in turn bolstered federal tax revenue, so are the Trump tax cuts increasing tax revenues a mere six months into the plan.
Investor’s Business Daily reports that just six months into the year, federal tax revenue is up $76 billion over the same period last year according to the Congressional Budget Office, a 9 percent jump even though tax brackets are lower. In a separate report the Treasury Department expects revenues to continue to grow the rest of the year.
Wages, salaries and benefits have grown in the last six months as workers reap the reward of lower tax rates propelling economic growth. The CBO revised its economic growth projection from 2 percent this year to 3.3 percent, more than a 50 percent increase.
About that exploding deficit
In a performance that was 1980s redux, Democrats wailed that the Trump tax cuts would “explode the deficit” (Nancy Pelosi) and they would be a “deficit busting tax cut to benefit the wealthiest Republicans” (Chuck Schumer). The reality is that the richest in America will pay more in taxes than under the previous tax structure. And Democrats claimed that the tax cuts did nothing to address nearly $3 trillion in corporate profits sitting in foreign banks. The reality is that the changes to the corporate tax plan incentivized the repatriation of that money and 12 percent of that money has already been recalled to the U.S.
And about that spending
But also like the 1980s, this Congress gleefully increased spending, squandering the increased tax revenue and then some, not only hurting America’s finances, but handing Democrats the chance to say, “see, I told you so”. The boost in tax revenue and rising spending will be ignored by Democrats and their public relations representatives in the main stream media. It will just be, “look, just as we predicted, tax cuts blow up the deficit.”
There is one key difference between the increased spending of today’s Congress and that of the 1980s: this Congress is controlled by Republicans whereas the 1980s Congress was in Democrat hands. So the President’s own party is the culprit in out-of-control spending this time.
Unsustainable
Congressional irresponsibility is painting U.S. fiscal policy into a corner. The only politically expedient way these soaring increases in spending can be paid for is for the government in conjunction with the Federal Reserve to monetize the debt, meaning to pay for it with inflated money. As Jerry has been pointing out, former Fed Chairman Alan Greenspan has predicted a return to stagflation in the 2020s.
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