Viktoria Dendrinou
Wed, October 11, 2023
(Bloomberg) -- The White House has blamed President Donald Trump’s tax cuts for contributing to a surge in the US budget deficit this year, laying down political battle lines as Republicans call for sweeping spending cuts to reduce government borrowing.
In a blog post days before the expected release of full 2023 fiscal year budget data, the White House Council of Economic Advisers said Wednesday that a reduction in revenues from capital gains taxes has played a notable role in the widening deficit. For the 11 months through August, the deficit has soared more than 60%, to $1.52 trillion.
“The level of the deficit and of revenues this year is unusual given the strength of the economy, a development that we expect is related to the revenue-reducing impact of the Tax Cuts and Jobs Act,” the CEA said in its post. Trump signed that legislation in 2017, after it was passed by a Republican Congress.
A surging stock market prior to 2022 effectively masked the impact of the Trump tax cuts, because they juiced capital gains revenues, according to the CEA’s analysis. Last year’s tax take in particular was boosted by capital-gains realizations that were “historically high,” the post said.
More broadly, evidence is now mounting that Trump’s tax cuts have caused a major reshaping of the level of revenue to be expected from a given expansion of the economy, according to the CEA. While a stronger economy typically leads to higher incomes and stronger revenues, the passage of the tax reductions shifted this relationship, the CEA said.
Election Issue
“While deficits still tend to shrink as the unemployment rate falls, the deficit became higher for any given level of unemployment,” they wrote.
Trump’s package lowered individual and corporate tax rates. President Joe Biden sought unsuccessfully to boost many of those rates in signature legislation the past two years. Tax policy is likely to be a key feature of the 2024 election.
Bloomberg Businessweek
Deficit Rises to $1.7 Trillion in 2023: CBO
Michael Rainey
Tue, October 10, 2023
The federal budget deficit totaled $1.7 trillion in fiscal year 2023, about $300 billion (23%) larger than the year before, according to a preliminary analysis released by the Congressional Budget Review on Tuesday.
The federal government received $4.4 trillion in revenues during the October 2022 to September 2023 period – $455 billion (9%) less than the year before. Outlays for the full fiscal year were $6.1 trillion, or $141 billion (2%) less than a year earlier.
As the CBO noted last month, the cancelation of the Biden administration’s plan to forgive billions of dollars in student loan debt distorted the data in both 2023 and 2022. If the recorded costs and savings for that plan – which never took effect – are excluded, the deficit in 2022 would shrink to about $900 billion, while the deficit in 2023 would increase to about $2 trillion.
“Thus, without the effects of debt cancellation (and excluding the effects of timing shifts), the deficit would have grown by nearly $1.1 trillion from 2022 to 2023,” CBO said.
The fiscal hawks at the Committee for a Responsible Federal Budget said the latest CBO numbers highlight the need to bring the federal debt and deficit under control. “After declining in recent years due to the pandemic ending, the deficit is now back on the rise, totaling $1.7 trillion in 2023 and more than double last year’s when you exclude the President’s now-overturned student debt cancellation and timing shifts,” CRFB's president Maya MacGuineas said in a statement. “With deficits doubling, interest rates surging, major trust funds on course to be exhausted in a decade, and new security threats emerging – everything is telling us it’s time to address the debt.”
The U.S. Treasury will provide the final, official numbers for the 2023 budget later this week.
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