Federal revenues fell in July compared to a year earlier, the Treasury Department reported Friday, including a $7 billion drop in taxes that is likely attributable to the tax cuts President Trump signed into law in December.
Friday’s numbers from the Treasury’s monthly budget report suggest that the tax cuts have expanded the federal deficit. July’s deficit totaled $77 billion, $34 billion more than in July of 2017. The deficit would have been larger by about $45 billion, according to projections from the Congressional Budget Office, but certain federal payments were shifted out of the month to avoid them falling on a weekend.
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Individual and payroll tax collections were about $1.4 billion lower in the month than a year before, a decline the CBO attributed to the lower tax withholding the Treasury implemented following the tax law’s enactment. The corporate tax haul decreased by nearly $5 billion. The tax law cut the corporate tax rate from 35 percent to 21 percent.
For the year to date, the government shortfall has totaled $684 billion, on pace for $849 billion for the full fiscal year. That would be the biggest annual deficit since 2012.
The Trump administration has maintained that the tax rewrite will not add to deficits, but instead generate enough new economic growth to bring in enough new taxes to pay for itself.
The nonpartisan Congressional Budget Office, however, has estimated that the tax cuts will add more than $1.85 trillion to deficits over the next 10 years, even after taking into account the possibility that they will spark faster growth.
In any scenario, though, the tax cuts would be expected to reduce revenues in the early months. Even in the best-case scenario, it would take a long time for new revenues to start flowing in, only after businesses take advantage of lower taxes to invest more and hire more workers.
In the meantime, though, the government’s fiscal situation is deteriorating. Thanks to this year’s tax cuts and congressional spending increases piled on a long-running mismatch between spending and revenues, annual deficits are expected to grow in the years ahead, from 3.5 percent of the economy to around 5 percent. The CBO projects the debt to grow from 77 percent of the economy to 96 percent by the end of the decade.
[Also read: Trump tax cut benefits all congressional districts, up to $44,697 per family]
