Did the Trump Tax Cuts Pay for Themselves?

Most of the revenue spike came, however, "from the massive burst of inflation in 2021 and 2022, which dramatically boosted nominal taxable incomes, immediately pushing households into higher income brackets before the brackets were indexed for inflation in the following year," according to the committee.

While it's impossible to accurately size the revenue reduction given the conditions of the past six years, "it is almost certainly true that the TCJA meaningfully reduced revenue from where it would have been" without the tax overhaul, according to the analysis.

In April 2018, the Congressional Budget Office projected revenue collection would total about $27 trillion between those years, the committee states, "an estimate that incorporated roughly $1.8 trillion in lower revenue from the net tax cuts in the bill and nearly $400 billion of positive revenue feedback from the estimated growth effects of the bill."

"Actual revenue collection through 2024 came in $1.5 trillion higher than projected, totaling $28.5 trillion through 2024, which has led some to conclude that the TCJA’s economic growth effects were larger than originally forecast and that the TCJA largely or fully paid for itself," the committee states. "However, the data show that all of this additional revenue can be explained either by higher inflation or by a temporary one-time revenue surge that came in 2022 — the fifth year after the passage of the TCJA and immediately on the heels of a pandemic and inflation crisis."

Cost of Extending the Tax Cut Law

Most of the 2017 tax law, which expires at the end of 2025, "includes various provisions that benefit individual and estate taxpayers," adds Jeff Bush of The Washington Update.

"Extending these provisions is estimated to cost the government around $4.2 trillion between 2026 and 2035," Bush continued, which "raises concerns within the GOP ranks about how the government plans to fund these tax cuts without exacerbating the federal debt, which currently stands at over $36 trillion."

Trump has proposed several measures to reduce federal spending to address the funding challenge, Bush said.

"On the campaign trail, he promised to employ broad-based tariffs to offset the cost of the tax changes," Bush added. "Many economists believe, and I tend to agree, that tariffs transfer the revenue gained by the government from U.S. consumers in the form of higher prices. Tactical tariffs to address various trade inequities can be a valuable trade/diplomacy tool."

Trump's Department of Government Efficiency, or DOGE, led by Elon Musk "is specifically chartered to find cost savings within the government."

Another proposal: "Rolling back the energy tax credits provided by Biden’s Inflation Reduction Act. While not significant in dollar terms, they are undoubtedly symbolic," Bush said.

"Trump’s efforts to de-regulate our economy should provide additional economic growth and, thus, more tax revenue," Bush opined.

One under-the-radar area is the 50% reduction in corporate tax revenue as a percentage of GDP over the last 50 years, Bush pointed out. "Some in the GOP believe generating additional revenue in this area of the code is warranted."

Bottom line: "Trump’s tax cut pledge presents a complex challenge for policymakers," Bush said. "While the proposed measures aim to benefit various segments of the population, the significant cost of extending the TCJA provisions necessitates careful consideration of funding strategies. The ongoing debate in Congress will likely focus on finding a balance between providing tax relief and ensuring the nation’s long-term fiscal health."

The Committee for a Responsible Federal Budget noted in its analysis that there's "a significant risk that the narrative that the tax cuts came closer to paying for themselves than projected will be used to argue extensions do not need to be offset. This is a dangerous path to take."

The fiscal situation, the group wrote, "is far worse today than when the TCJA was passed, with debt at nearly 100% of GDP and interest costs at 3.1% of GDP — compared to 75% and 1.4% before TCJA was enacted. This means further borrowing is likely to be even more detrimental to the economy than it was when debt was lower. Meanwhile, the tax cuts being considered for extension are likely to grow the economy by significantly less than those that are already permanent — estimates suggest that extension will pay for no more than 14% of itself and that the effects could be negative on a dynamic basis."

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