Red Ink: Are President Trump's massive tax cuts what's driving federal deficits upward. Everyone says so. But, it's not true. It's just a way for lawmakers to distract the public while they crank up the spending machine. Just like the Senate did this week.
XEarlier this week, Trump's top economic advisor, Larry Kudlow, gave a talk at the Economic Club of New York in which he said that tax cuts aren't to blame for deficits.
"People are quick to blame deficits on tax cuts, but I don't buy that," he said. "The gap is principally spending too much."
You could almost hear the jaws dropping among the Washington pundits and budget "experts."
How could Kudlow make such a ludicrous claim? Everyone knows that Trump's $1.5 trillion tax cuts are fueling the increase in deficits. What explains why this year's deficit is running higher than last year's?
If anything, Kudlow could have been more emphatic. The deficit gap isn't "principally" because the federal government is spending too much, it's entirely due to spending.
How do we know that?
Each month the Treasury Department releases its tally of federal spending and revenues. The most recent data are through the month of August. Since the federal government starts its fiscal year in October, the latest report includes all but one month of the 2018 fiscal year.
What do the data show?
Through August, the federal deficit topped $898 billion. Over the same period last year the deficit was $674 billion.
So, the deficit is running $224 billion higher this fiscal year compared with last.
But the Treasury data also show that federal revenues through August totaled $2.985 trillion. That's an increase of $19 billion over the previous year.
In other words, despite Trump's massive tax cuts, federal revenues are running higher this year than last.
The problem is that federal spending has climbed even faster. Through August, outlays totaled $3.88 trillion. That's $243 billion more than the prior fiscal year.
So, do the math.
If it weren't for the increase in revenues, the deficit would be higher than it is.
Take a closer look at the revenue side of the equation and you'll see that Trump's tax cuts are, in some cases, more than paying for themselves.
The Treasury data show that while corporate income tax receipts are down, individual income tax revenue is up by $100 billion — a 7% gain — over last year. Payroll taxes are up by $5 billion. Revenues from excise taxes and customs duties are also up.
So, while corporations are paying fewer taxes, they're hiring more workers and paying them more, which is generating additional income and payroll taxes. This is exactly what advocates of the tax cuts predicted would happen.
As Kudlow explained in his remarks, increased growth has "just about paid for two thirds of the total tax cuts."
What about the spending side? Even though Republicans control the White House and Congress, there's been no spending discipline in Washington. Almost every federal agency has seen its budget increase.
Through August, for example, the Department of Agriculture has spent $11 billion more than it did over the same period last year. The Department of Energy, $1 billion more. Homeland Security, $21 billion. Interior, $2 billion. Justice, $3 billion. State, $1 billion. Defense, $37 billion. HHS, $56 billion. Social Security, $69 billion.
Even the Office of Personnel Management has seen its budget climb by almost $3 billion.
The spending splurge continues.
This week, the Senate passed an $854 billion spending bill that boosts the National Institutes of Health budget by 5% and military pay by 2.6%, among other things
That bill passed by a 93-7 margin — proving that the only thing Democrats and Republicans have in common these days is the unquenchable desire to spend more taxpayer money.
In his remarks, Kudlow said that "If you grow rapidly you're going to have lesser deficits. Growth solves a lot of problems."
He's right about that.
But faster economic growth can't solve the deficit problem if Congress continues to spend like there's no tomorrow.
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