Federal Deficit For November Hits Record High Despite Tax Reform

[corbe]

Federal Deficit For November Hits Record High Despite Tax Reform

by David Thornton
2 hrs-edited

Spending is up sharply under President Trump while revenues are flat after tax reform.

Tax reform stands as the one major legislative accomplishment of the Trump Administration. The measure became law a year ago and, as forecasted, jumpstarted growth in an economy that had been largely stagnant since the Great Recession. Unfortunately, tax reform has so far not lived up to its promise of paying for itself with that increased growth. In fact, the deficit for the 2018 fiscal year, which ended in September, is the largest in six years despite increased growth and revenues.

Figures from November show that the budget deficit was the largest ever recorded for that month. The Treasury Department reported Thursday that federal spending increased by 18 percent to $411 billion for the first two months of FY 2019.

Despite the tax reform and the increased tariff taxes on trade, revenues were flat at $206 billion, about half of what the government spent. The deficit of $205 billion, 49.8 percent of spending, was almost twice as high as last November’s $139 billion deficit. Increased tariffs led to an 86 percent increase in customs duties received but still only accounted for $11.8 billion in revenues.

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https://www.themaven.net/theresurgent/contributors/federal-deficit-for-november-hits-record-high-despite-tax-reform-2sSwsfMUgUeFyG5bkQhV3w/

[Free Vulcan]

Except that tax receipts have exploded to record levels.

[jmyrlefuller]

Except that tax receipts have exploded to record levels.

Not true— it specifically said revenues are unchanged, which is better than a decline but not the golden ticket to spend, spend, spend as our government loves to do. We are at the peak of the Laffer curve right now.

[Oceander]

Except that tax receipts have exploded to record levels.

Except that spending has exploded beyond even those levels.  The deficit is the excess of expenditures over revenue.   

[Oceander]

The laugh line: deficits up despite tax reform.

Uh, duh.  What else would one expect from a “reform” that cut tax rates?   Marginal rates are way outside laffer curve territory, so cutting the rates doesn’t boost revenues.

[Free Vulcan]

Except that spending has exploded beyond even those levels.  The deficit is the excess of expenditures over revenue.

And both are independent variables with no relation to each other. Tax reform is not causing our deficits.

[Free Vulcan]

Not true— it specifically said revenues are unchanged, which is better than a decline but not the golden ticket to spend, spend, spend as our government loves to do. We are at the peak of the Laffer curve right now.

I've been watching the monthly results, which have been up around 8% or so and in record territory.

[Oceander]

And both are independent variables with no relation to each other. Tax reform is not causing our deficits.

Yes, it is.  The tax “reform” was passed using reconciliation, which means they couldn’t touch spending; therefore, the existing level of spending was a fixed constant against which the effects of the tax cuts had to be measured.  On that measure, the “reform” has increased the deficits. 

[Free Vulcan]

Yes, it is.  The tax “reform” was passed using reconciliation, which means they couldn’t touch spending; therefore, the existing level of spending was a fixed constant against which the effects of the tax cuts had to be measured.  On that measure, the “reform” has increased the deficits.

That was their legislative choice, but it has no bearance on the economic principle. The tax cuts are increasing revenue irrespective of spending. Correlation is not causation.

[Oceander]

That was their legislative choice, but it has no bearance on the economic principle. The tax cuts are increasing revenue irrespective of spending. Correlation is not causation.

Tax cuts are increasing revenue?  Seriously?   Sorry, but no.  We are not on that end of the laffer curve.  The tax cuts are reducing revenues from where they would have been absent the cuts.  If revenues have increased, it’s because of either more economic activity, or because something has distorted timing decisions so that revenue that would have been realized next year is instead being realized this year. 

[Free Vulcan]

Tax cuts are increasing revenue?  Seriously?   Sorry, but no.  We are not on that end of the laffer curve.  The tax cuts are reducing revenues from where they would have been absent the cuts.  If revenues have increased, it’s because of either more economic activity, or because something has distorted timing decisions so that revenue that would have been realized next year is instead being realized this year.

The Laffer Curve is overly simplistic.

Yes, there is more economic activity, in large part of the psychological and financial effects of both tax cuts and reforms.

Whatever loss of revenue we've had due to them has been more than offset by the reaction to them consisting of more spending and investment, and will continue to do so.

[Oceander]

The Laffer Curve is overly simplistic.

Yes, there is more economic activity, in large part of the psychological and financial effects of both tax cuts and reforms.

Whatever loss of revenue we've had due to them has been more than offset by the reaction to them consisting of more spending and investment, and will continue to do so.

Nope.  What you’re seeing is a massive distortion caused by the one-time imposition of the so-called “transition tax” under IRC 965.  That’s a one-time goose to revenues that won’t be there in any future year. 

[Hoodat]

Tackling the deficit requires spending reform - not tax reform.  It doesn't really matter where you set the tax rates.  The government's cut of GDP will always be around 19%.  So if government spends more than 19% of GDP, then we have deficits.

[Free Vulcan]

Nope.  What you’re seeing is a massive distortion caused by the one-time imposition of the so-called “transition tax” under IRC 965.  That’s a one-time goose to revenues that won’t be there in any future year.

Bet on that horse if you want, I see a much broader effect happening.

[Hoodat]

Nope.  What you’re seeing is a massive distortion caused by the one-time imposition of the so-called “transition tax” under IRC 965.  That’s a one-time goose to revenues that won’t be there in any future year.

I suppose the fact that our federal budget sucks up almost 22% of GDP has nothing to do with it.

[IsailedawayfromFR]

The headline seems to make one think that reforming taxes means lowering the deficit.

There is no logic whatsover in seeking these are somehow related.

Taxes could be zero or raised 1000% and spending could still causes deficits to rise.