Aug 072018

The tax cut  pushing deficit higher. In the trough of the Great Recession in 2009, as companies laid off hundreds of thousands of workers each month, the amount of corporate income taxes collected by the federal government plunged by almost a third. It was the largest quarterly drop since the Commerce Department began compiling data in the 1940’s. No other period came close. Until this year. In the first half of 2018, corporate tax collections dropped to historically low levels as a share of the economy, according to data from the Bureau of Economic Analysis. That is pushing up the federal budget deficit much faster than economists had predicted. With that we have the tax cut pushing deficit higher.

The reason for this is President Trump’s tax cuts. The new law introduced a standard corporate rate of 21 percent, down from a high of 35 percent, and allowed companies to immediately deduct many new investments. As companies operate with a lower tax burden and a greater ability to offset what they owe, the federal government is receiving far less revenue than it would have under the previous tax system. The growing deficit has forced the Trump administration to adjust its claim that the tax cuts would pay for themselves by generating increased revenue from faster economic growth. The White House’s Office of management and Budget said this month that it had revised its forecasts from earlier this year to account for nearly $1 trillion of additional debt over the next decade-almost $100 billion a year in additional deficits, on average.

With the tax cut pushing deficit higher, the long term implications for policy makers are ominous. Business owners, facing longer term interest rates, municipalities with the same longer interest rates on bonds, will have to make harder choices in decisions, with far reaching consequences, for decades to come. It seems like those decisions have simply been kicked down the road for now. The governments ability to stabilize balance sheets also will make it harder to deal with any future recessions’ or maintain spending programs at current levels in the future. msnbc

When a tax cut pushing deficit higher period begins, planning for it ahead of time is essential. It looks like that has been thrown out the window. The United States annual budget deficit is expected to top $1 trillion as early as the 2019 fiscal yer, with the Congressional Budget Office’s baseline forecasts showing the annual deficit rising to $1.5 trillion over the next 10 years.


  •  08/07

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