Tax Cuts As Tragedy, Then Farce

For the second week in a row, we’re starting with the Wall Street Journal editorial page. What can I say, when the orthodoxy of a discredited fundamentalism crumbles, the happenings within the High Temple are rather interesting to observe.

ONE THING TO READ

Your one thing to read this week is from Mike Pence and Pat Toomey at the Wall Street Journal: “If Republicans Don’t Win, Get Ready for a Tax Hike.”

In key and timbre, it has the character of a typical incantation. Tax cuts create growth. We must do more. But the notes struck are so, well, wrong, that one worries for the well-being of everyone involved in its publication. Consider their data, and the real world’s data, on economic performance before and after passage of the Tax Cuts and Jobs Act (TCJA) in December 2017:

1. Growth. Pence and Toomey write that “the Obama years had offered only lethargic recovery,” with “weak growth from 2009 to 2016.” From the recession’s end in the third quarter of 2009 to the end of 2016, annual GDP growth averaged 2.3%, according to the Bureau of Economic Analysis. Growth rose to 3.0% in 2017 but then, after passage of TCJA, it fell the following year to 2.1%.

2. Employment. “Within two years the U.S. gained an extraordinary seven million jobs.” This is false. Employment in December 2019 was 4.3 million jobs higher than when TCJA passed in December 2017, according to the Bureau of Labor Statistics. That rate of increase was below the annual average for the “lethargic recovery” and “weak growth” of 2010–16. For instance, the economy added 5.3 million jobs during 2013–14 period and 5.0 million jobs during 2015–16.

3. Tax Revenue. “Growth was so significant that government revenue as a percentage of gross domestic product increased, driven by higher earnings and booming business activity.” Seeing as growth was not “so significant” (in fact, it slowed), the rest of this statement is unsurprisingly wrong, too. Revenue as a percentage of GDP was 17.1% in 2017 according to the Congressional Budget Office. After TCJA’s passage, it fell to 16.3% in 2018 and remained at 16.3% in 2019.

4. More Tax Revenue. “More than six years after the TCJA took effect, tax revenue has exceeded CBO projections from June 2017.” In June 2017, CBO’s projection for 2023 tax revenue was 18.2% of GDP. Actual 2023 revenue was 16.5% of GDP.

5. Yet More Tax Revenue. “By 2023 annual tax revenue had … returned to its historical average of about 16.5% of GDP.” That’s not the historical average, not even close. Prior to TCJA, a figure that low was recorded in the three years after the Great Recession (2009–12), the two years after the second round of Bush tax cuts (2003–04), and one other time since 1960 (in 1965, I don’t know why). Average tax revenue as a share of GDP from 1960 to 2017 was 17.4%.

What facts did the op-ed get right about growth, job creation, and tax revenue? Literally none. The reality, as I explain in Tax Cut Did What?, is that TCJA failed miserably on the metrics chosen by its proponents. What it did do is send the federal budget further into deficit. Now the same proponents are trying to make the case for a tax cut twice as large, and they have no case for it that isn’t just made up.

Speaking of failed ideologies, it seems Karl Marx was on to something here: Pursuing TCJA after the failure of the Bush tax cuts was indeed a tragedy. This time around, it has devolved into farce.