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The Congressional Budget Office (CBO) estimates tax receipts for the first eight months of fiscal year 2022 will be $3.4 trillion, $768 billion more than the same period last year. No matter which side of the political aisle you are on, this is good news, a bright spot amid deteriorating economic conditions in the U.S. Straight Arrow News contributor Larry Lindsey breaks down some of the reasons for the projected windfall and argues that repealing tax cuts for the wealthy is not the way forward.
At the end of May, the Congressional Budget Office, often known as CBO, put out its long range outlook for the US economy. And for our budget situation. My suggestion is not to read it or you become very depressed, the U.S. fiscal situation is falling apart.
But there was one bright spot. And that is U.S. tax receipts are doing actually quite well as a percentage of GDP, at or near. They’re not quite record levels, but well above average levels.
Now, one of the interesting things about the CBO analysis is comparing this year’s report 2022 report with the one they put out in 2018. Back then they cut the revenue, they were expecting the U.S. government to take in because of the 2017 tax cuts.
Well, it turned out that this year’s projections, starting with 2022, tax receipts were actually 9% higher than what they estimated, about .8% of GDP. That’s a big number when you’re trying to balance the budget.
And if you look at their long run projections, receipts are now projected to be about what they were if we hadn’t had any tax cut at all, meaning that although many factors may have been at stake, in effect, the cost of the 2018 tax cut was zero.
Now, what is behind all this?
Well, what’s interesting is that in the last few years, starting actually, in 2018, overall income became more equally distributed. In fact, it was the first time Trump was probably going to go down as the first president in since the end of World War Two, or at least since the 1960s, to see a decline in inequality in his tenure.
But although overall income became more equal, taxable income became more skewed to the rich.
One of the reasons for that is that there was expansion of tax credits, both in the 2017 bill, and afterwards, that generally went to lower income families.
Second was the normal supply side effect. That means that people who have seen a bigger percentage cut in their taxes will tend to work more, produce more, take more risks and generate more tax revenue.
Third, and the big one probably, is capital gains tax receipts. Now, the capital gains tax cut was somewhat helpful in that regard but so was a rapidly rising stock market.
But in the end, taxes, particularly on the rich, have gone up quite a bit. That should be a lesson for the current Congress, taking away those tax cuts probably isn’t going to produce the revenue you think it is.
