The White House has blamed President Donald Trump’s tax cuts for contributing to a surge in the US budget deficit this year, laying down political battle lines as Republicans call for sweeping spending cuts to reduce government borrowing.
In a blog post days before the expected release of full 2023 fiscal year budget data, the White House Council of Economic Advisers said Wednesday that a reduction in revenues from capital gains taxes has played a notable role in the widening deficit. For the 11 months through August, the deficit has soared more than 60%, to $1.52 trillion.
“The level of the deficit and of revenues this year is unusual given the strength of the economy, a development that we expect is related to the revenue-reducing impact of the Tax Cuts and Jobs Act,” the CEA said in its post. Trump signed that legislation in 2017, after it was passed by a Republican Congress.
A surging stock market prior to 2022 effectively masked the impact of the Trump tax cuts, because they juiced capital gains revenues, according to the CEA’s analysis. Last year’s tax take in particular was boosted by capital-gains realizations that were “historically high,” the post said. More broadly, evidence is now mounting that Trump’s tax cuts have caused a major reshaping of the level of revenue to be expected from a given expansion of the economy, according to the CEA. While a stronger economy typically leads to higher incomes and stronger revenues, the passage of the tax reductions shifted this relationship, the CEA said.“While deficits still tend to shrink as the unemployment rate falls, the deficit became higher for any given level of unemployment,” they wrote.
Trump’s package lowered individual and corporate tax rates. President Joe Biden sought unsuccessfully to boost many of those rates in signature legislation the past two years. Tax policy is likely to be a key feature of the 2024 election.
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