The latest budget figures from the Treasury Department demonstrate a concept we already knew but too many politicians continue ignore – we have a spending problem, not a revenue problem.
One would have expected gross revenue to plummet in February once the new tax rates were applied to withholdings for this year. My withholdings dropped already for the last two weeks in January but by February everyone should have seen the effects of the tax cut and revenue to the Treasury should have shrunk noticeably. After all, on some measure this was the largest tax cut in history. Yet compared with February 2017, gross revenue was nearly unchanged. It actually ticked up very slightly by $1.36 billion.
It’s called economic growth. With more people working and more economic growth leading to upward mobility and higher wages, even though the Treasury lost some cash on withholdings, overall it has not lost revenue.
While withholdings for individual income taxes did decline slightly – from $116.7 billion to $110.7 billion – that is not nearly as much as one would have predicted had the Congressional Budget Office’s static analysis of massive revenue loss been actualized. Gross corporate tax revenue was essentially unchanged and the revenue loss from individual incomes taxes was made up through…you guessed it: more people having jobs. Payroll taxes as well as other sundry taxes and fees increased. Which means more people are working and the economy is growing. We now know that 313,000 jobs were created in February and 653,000 rejoined the labor force.
And this is built off of a record-high gross revenue baseline because total receipts are still $50.5 billion higher than at this time last year, which was higher than the year before.
In January, gross revenue was actually up a whopping $17 billion relative to January 2017. And while many people didn’t see withholdings drop until February 2018 a number of paychecks already reflected the new tax rates towards the end of the month. It’s still early, but there is no indication so far that dire predictions of massive revenue loss will come to fruition.
Clearly, if your primary goal is to get more revenue (not mine as a conservative), the key is to grow the economy. And you don’t grow the economy by raising taxes and increasing regulations. Undoubtedly, the deregulation agenda by this administration contributed to growing the economy and mitigating some of the revenue lost as a result of cutting taxes. Imagine how the economy would do if we fully repealed Obamacare regulations and market distortions that are crushing businesses? We rightfully focus a lot on the insanely high premiums in the individual insurance market but according to the American Action Forum, the higher cost of premiums for group plans cost employers $19 billion in lost wages, 10,130 fewer business establishments, and nearly 300,000 lost jobs. Imagine if they repealed the ethanol mandate, CAFE standards, all of Dodd-Frank, and section 404(b) of Sarbanes Oxley? Imagine if they passed the REINS Act?
Obviously it’s still way too early to assess the budgetary effects of the tax cuts as much as we already assessed the economic effects and there is no doubt that over the course of a full year corporate tax revenue will fall and individual withholdings will decrease. At the same time, as larger S Corps transform to C Corps, individual taxes will decrease (S corp. revenue is included in individual tax revenue); however, that should help pad some of the losses on the corporate side. But CBO predicted the feds would lose $144 billion in this fiscal year alone and $271 billion in the next fiscal year. With just seven months left of the fiscal year and net revenue already higher than last year, and only diminishing from withholdings at a slow pace (while growing in other areas), CBO will likely wind up as accurate as they were on Obamacare premium rates.
The point is that the likely mild loss in revenue is well worth the massive economic expansion, raises and bonuses and more individual withholdings in the pockets of tax paying Americans.
Now compare this to the spending side of the ledger and you will see we are not getting such a good deal. Outlays so far this fiscal year have already outpaced last year by $70 billion and thanks to the budget betrayal bill in February, we are just getting started. We are mortgaging our future to pay for massive health care and education programs that are creating private monopolies in both those fields and commensurate with the rate of federal spending is the price inflation for both. We are leaving our rising generation with government-sponsored health care and education cartels that destroy innovation, sky-high insurance bills, crushing student debt, and nothing to show for it but a public debt that will soon force us to pay more than the cost of the military just on interest payments.
With the latest economic news, now would be the perfect time for Republicans to pocket the success of the tax cuts, force Democrats to take a vote on making them permanent and move on to systemically reforming big government programs to cut spending in the long-run. Yet, they plan to pass a massive omnibus bill codifying all of the spending increases agreed to in the February budget cap repeal. The only question then is how many liberal policy riders are loaded up in it? Furthermore, they plan to scuttle budget reconciliation this year, which means they will have no means of passing welfare reform or a single spending cut without the filibuster.
There will come a time very soon when no amount of tax revenue can save us from the spending crisis. And GOP control of all three branches might not happen again until we reach the point of no return.
Daniel Horowitz is a senior editor of Conservative Review. Follow him on Twitter @RMConservative.