Trump Tax Cuts Are Boosting Growth And Mostly Paying For Themselves, CBO Report Says

Source: Trump Tax Cuts Are Boosting Growth And Mostly Paying For Themselves, CBO Report Says

When the Congressional Budget Office released its updated budget forecast, everyone focused on the deficit number. But buried in the report was the CBO’s tacit admission that it vastly overestimated the cost of the Trump tax cuts, because it didn’t account for the strong economic growth they would generate.

Among the many details in the report, the one reporters focused on was the CBO’s forecast that the federal deficit would top $1 trillion in 2020, two years earlier than the CBO had previously said.

And, naturally, most news accounts blamed the tax cuts. “U.S. budget deficit to balloon on Republican tax cuts” is how Reuters put it in a headline.

But there’s more to the story that the media overlooked.

First, the CBO revised its economic forecast sharply upward this year and next.

Last June, the CBO said GDP growth for 2018 would be just 2%. Now it figures growth will be 3.3% — a significant upward revision. It also boosted its forecast for 2019 from a meager 1.5% to a respectable 2.4%.

“Underlying economic conditions have improved in some unexpected ways since June,” the CBO says. Unexpected to the CBO, perhaps, but not to those of us who understood that Trump’s tax cuts and deregulatory efforts would boosts growth.

In any case, the CBO now expects GDP to be $6.1 trillion bigger by 2027 than it did before the tax cuts.

The CBO report also makes clear that this faster-growing economy will offset most of the costs of the Trump tax cuts.

In a table buried in the appendix of the CBO report, it shows that, before accounting for economic growth, the tax cuts Trump signed into law late last year would cut federal revenues by $1.69 trillion from 2018-2027.

But it goes on to say that higher rate of GDP growth will produce $1.1 trillion in new revenues. In other words, 65% of the tax cuts are paid for by extra economic growth.

That faster growth will also reduce federal entitlement spending keyed to the economy — unemployment insurance, food stamps, welfare and the like — by $150 billion, the CBO says.

If you subtract that from the cost of the tax cuts, the net cost drops to $440 billion.

This is what we and other backers of the tax cuts had insisted all along. Not that tax cuts would entirely pay for themselves. But that the economic growth they generate would offset much of the costs.

Looks like we were right.

Spending Is the Real Culprit
That still leaves the problem of the deficit. By 2022, federal deficits will top 5% of GDP, something that happened only once between World War II and President Obama’s spending spree.

What’s more, national debt is on track to top 91% of GDP by 2025 and reach 96.2% by 2028.

Despite what Democrats and the media insist, the culprit here isn’t tax cuts. It is out-of-control spending, which will be nearly $1 trillion higher over the next decade thanks to recent spending deals.

Even with Trump’s tax cuts in place, federal revenues climb every year as a share of GDP, going from 16.6% this year to 17.5% by 2025. (The post-World War II average for revenues is 17.2% of GDP.)

Unfortunately, spending is on track to climb even faster — going from 20.6% of GDP this year to 23.6% by 2028. (The highest spending ever got under Obama was 24.4% of GDP, and the post-War average is 19.3%.)

This is little short of a disgrace, and shows that Republicans love spending taxpayer money as much as Democrats.

In fact, some GOP senators don’t even want Trump to use his rescission authority to strip some of the worst spending items out of the bipartisan $1.3 trillion spending monstrosity.

Someone needs to remind these alleged fiscal conservatives that if they can’t get control of spending today, it’s a virtual guarantee they’ll end up agreeing to a “deficit cutting” tax hike tomorrow.

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Minnesota: Rule or exception?

A meme, and a notion, floating around the Internet:

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So do these changes really kick-start an economy? Here’s an analysis from the “Being Classically Liberal” Facebook page:

1. Minnesota had ALREADY been experiencing a decent economy prior to the tax increases. As USA today explains, “Minnesota had one of the nation’s lowest unemployment rates in 2012 …and one of its highest GDP growth rates, at 3.5%.” [a] The tax increases came the following year, in 2013. [b] Minnesota continued to maintain its rank of having one of the best unemployment rates, and any further decrease in its unemployment rate simply mirrored national trends. One cannot reasonably conclude, then, that the 2013 tax increases had “caused” the good economy which was already in place before said tax increases even existed.

2. Understand that this controversy is over TWO tax increases; One which increased income taxes on individuals earning above $150,000 a year or couples earning above $250,000. [b] [c] The other which increased the state’s excise tax on cigarette sales by 130%. [d] It’s rather disingenuous for progressives to point to the these two tax increases and declare ideological victory since jobs hadn’t vanished. For one, they’re conflating conerns. Concerns over businesses fleeing to neighboring states are not based on income taxes but more so on a state’s business environment. And in that regard, it’s relevant to point out two key facts:
a. Business taxes have actually been CUT since 2013. [e] This is something progressives don’t seem to be acknowledging.
b. Once analyzed in a 2014 study, the cigarette tax increase has, as predicted, been quite detrimental to sales. [d] We will list the pertinent details below.

THE CIGARETTE TAX:

“In 2013 the Minnesota Legislature passed a 130% increase in the cigarette excise tax and also increased the tax on other tobacco products from 70% of the wholesale price to 95% of the wholesale price.” In 2014, when a study was conducted to measure the effects of this new policy, the following conclusions were found: [d]

• 1,100 jobs were estimated to have been lost or eliminated by 2014 as a result.

• Tobacco sales declined 50% in Minnesota stores along the border.

• Dramatic sales increases of tobacco products occurred in all four bordering states, indicating consumers had merely shifted to out of state purchases.

• By 2014, $38 million of lost sales in non-tobacco products also occurred as an indirect result.

• Nearly a quarter of all cigarettes consumed in Minnesota are now estimated to be purchased in other states.

As you can see, Minnesota may in fact be doing well, but this is due to other variables and not due to an increase in income taxes or cigarette taxes. One must consider the many other relevant variables at play. For instance, Minnesota borders water which automatically benefits ANY region, as it makes it part of a commercial trade route. This alters the conditions that might otherwise push businesses to conduct commerce elsewhere. Consider this. Part of Minnesota’s border is water (beneficial to business), another part is Canada (not appealing to most companies seeking to stay in the US), and the rest of its border are 4 neighboring states, where 3 of which are landlocked. This gives Minnesota an upper hand relative to other states, which is entirely relevant when one’s concern is commerce. Furthermore, Minnesota is home to a major natural resource and produces 75% of the country’s iron ore. [f] The iron-ore industry can’t just pick up and leave. Lastly, there has emerged a rather extensive list of tax CUTS, credits, or simplifications, all potentially offsetting the detriments of the aforementioned two tax increases. [e] They are as follows:

• $230 million in reduced taxes, as well as a simplification of the tax code, for Middle Class Minnesotans.

• The elimination of the “marriage penalty” tax, saving more than 650,000 married couples an average of $115 per year.

• Over 16,000 additional middle class families will qualify for the Working Family Tax Credit.

• Tax Cuts for Parents. More than 25,000 families who qualify for child care tax credits will see an average increase in their tax credit of $74 per year.

• Tax Cuts for Students. More than 285,000 recent college graduates could save up to $190 per year by deducting their student loan interest. Another 40,000 current college students and parents will receive a tuition deduction of $140 per year, on average.

• Tax Cuts and simplification of the tax code for Small Employers as well as an elimination of a requirement to maintain separate records for federal taxes.

• Tax cuts for seniors, teachers, and homeowners.

• A reduction in business sales taxes by $232 million.

• All three business-to-business taxes were repealed.

• The sales tax on repair and maintenance of electronic, farm, and commercial equipment has been repealed.

• The warehousing sales tax was repealed.

• Sales tax on telecommunications equipment has been repealed.

• $3 million in tax CREDITS for “Innovation and Jobs” and specifically “fuel innovation” has been set aside.

• Another $3 million in Tax Credits for startup businesses and entrepreneurs.

• Simplification of the Estate Tax, raising the exemption from $1 million to $2 million.

• Elimination of the Gift Tax; a reduction of $43 million.

• Furthermore, in May of 2014, an additional $103 million in tax cuts for homeowners, renters and farmers was agreed to. [g]

CONCLUSION:
To point to all of this and declare, “Tax increases created jobs!” is MORE than a bit questionable. When you already have a decent economy, and firms see tax cuts for businesses and consumers on the horizon, it shouldn’t be a surprise that they’d likely remain in the state. Minnesota is doing well for many reasons, but their 2013 income tax increase on the top 2% of earners and their 2013 cigarette tax increase are NOT why. Add to all of the Minnesota tax cuts the fact that their government has begun shrinking in size per recent jobs numbers showing the government shed 4,200 jobs in December of 2014 alone [h] and it’s a wonder why Progressives keep proudly waiving this example around.
—————————-
Sources:
[a]  http://www.usatoday.com/…/states-with-the-fastest-…/2416239/

[b] http://www.albertleatribune.com/…/minnesotas-higher-taxes-…/

[c] http://www.revenue.state.mn.us/…/Minnesota_Income_Tax_Rates…

[d] http://www.cspnet.com/…/mn-tobacco-tax-crippling-retailers-…

[e] http://mn.gov/…/the-office-of-the-governor-blog-entry-detai…

[f] http://www.oxfordlearnersdictionaries.com/…/engli…/minnesota

[g] http://www.twincities.com/…/minnesota-tax-cuts-worth-100m-f…

[h] http://bringmethenews.com/…/minnesotas-unemployment-rate-f…/

The problem is, there are a multitude of variables in any economy. In order to claim that any given outcome is due only to one or two changes, you’d really need to have two Minnesotas, one where the changes happened, and one where they didn’t, but are otherwise identical.

This doesn’t exist anywhere in the world.

“Tax Cuts for the Rich”

Thomas Sowell pops out of retirement long enough to address this, once again.

The hardest of these hard facts is that the revenues collected from federal income taxes during every year of the Reagan administration were higher than the revenues collected from federal income taxes during any year of any previous administration.

How can that be? Because tax RATES and tax REVENUES are two different things. Tax rates and tax revenues can move in either the same direction or in opposite directions, depending on how the economy responds.

But why should you take my word for it that federal income tax revenues were higher than before during the Reagan administration? Check it out.

Official statistics are available in many places. The easiest way to find those statistics is to go look at a copy of the annual “Economic Report of the President.” It doesn’t have to be the latest Report under President Trump. It can be a Report from any administration, from the Obama administration all the way back to the administration of the elder George Bush.

Each annual “Economic Report of the President” has the history of federal revenues and expenditures, going back for decades. And that is just one of the places where you can get this data. The truth is readily available, if you want it. But, if you are satisfied with political rhetoric, so be it.