Tax Cuts Should Increase Revenue In One Year

posted by Claudia Mendoza - 

The tax cuts are on pace to increase revenue to the federal government in year one. 

For well over a year, I’ve shared information regarding how tax cuts have historically added revenue to the federal government, due to an improved economy, rather than taking away from it. Before I share the latest year one impact via the Tax Cut and Jobs Act here’s a reminder of what's happened with tax cuts previously. 

The JFK tax cuts went into effect in 1964. Average tax rates were cut by 20%. Here's what happened to the federal budget. The federal revenue in 1963 was $107 billion, in 1964 $113 billion, in 1965 $117 billion, in 1966 $131 billion and in 1967 $149 billion. Revenue to the government grew by 39% in the five years after the JFK tax cuts  

The Reagan tax cuts went into effect in 1981 and averaged a 25% reduction in rates. This is a look into the five-year outlook on revenue. FY 1981 - $599 billion, FY 1982 - $618 billion, FY 1983 - $601 billion, FY 1984 - $666 billion, FY 1985 - $734 billion. Revenue to the government grew by 23% in the five years after the Reagan cuts.    

So, what’s going on right now? The first quarter of the year, when the tax cuts were first washing into the economy, we saw revenue to the federal government decline by 5% year over year. However, with economic growth surging from 2.2% in the first quarter to 4.2% in the second quarter, the tables began to turn. That jump in the US economy was enough to generate more tax revenue than the prior year’s second quarter which grew at 3%. 

Given our current economic pacing for the year, the current projections on growth and revenue show the US economy producing an estimated 1.5% increase in total revenue to the federal government in year one. Should that hold it would mirror the impact of both the JFK and Regan tax cuts which increased revenue in year one. The exact opposite of the narrative advanced by those who are politically opposed to them. 

Photo By: Getty Images

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