Just in case the bottom of that tweet was cut off in your browser, let me repeat Wesbury’s words: “The tax cuts have not cost the U.S. Treasury money, because the tax cuts boosted growth. Yes, the deficit is up, but that’s because spending is up.”
He’s right that spending is up! It was 3.5 percent higher year over year in the January-June period he references, and it’s up 7.4 percent from January-August 2017 to January-August of this year, according to the latest Monthly Treasury Statement. But that raises an interesting question: Since we now have data available through August, why is Wesbury citing January-June numbers? Well, maybe because, measured January to August, federal tax revenue is actually down 0.4 percent so far this year.
That’s strike one for the assertion that “the tax cuts have not cost the U.S. Treasury money.” Actually, it’s strikes one, two and three, because even by Wesbury’s standard, the Tax Cuts and Jobs Act of 2017 that President Donald Trump signed into law in December has so far cost the Treasury money. But it’s important also to point out — again and again, because people in Congress and elsewhere keep embracing the fallacy that tax cuts reliably increase revenue — that his standard is ridiculous.
It’s ridiculous first of all because it ignores inflation, which, as measured by the Consumer Price Index, averaged 2.1 percent over the first half of this year, turning that 0.2 percent January-June gain into a 1.8 decline in real tax revenue. Substitute the deflator used in calculating real gross domestic product, and it’s a 1.9 percent decline.
Even if tax revenue had increased in real terms, though, this still wouldn’t demonstrate that the tax cuts hadn’t cost the Treasury money. That’s because real tax revenue usually goes up when the economy is growing. So when the Congressional Budget Office or Joint Committee on Taxation makes an estimate of the revenue losses from a tax cut, they aren’t saying that tax revenue will go down by that amount in absolute terms; they’re saying that it will be that much lower than they think it would have been in the absence of the tax cut.
