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Texas Sen. Ted Cruz touted his support for the Republican-backed tax bill in his second debate against Democratic U.S. Rep. Beto O’Rourke.
After saying that previous tax cuts have led to increases in revenue, such as those under Presidents John F. Kennedy and Ronald Reagan, Cruz said, "This time with that tax cut we’re seeing the result, and to date, federal tax revenues have gone up. Federal tax revenues are higher this year than they are last year without the tax cut." (It can be seen here around the 51:00 mark.)
Is that correct?
Specifically, new federal data show that tax revenues rose between fiscal year 2017 and fiscal year 2018 by 0.4 percent. (Federal fiscal years run from Oct. 1 to Sept. 30.) The rise is smaller than almost every previous year since World War II, except for a handful of years in which tax revenues declined, largely due to recessions.
And the Committee for a Responsible Federal Budget, a group that favors shrinking the federal deficit, found that the small increase in nominal dollars collected disappears once you add in other factors.
If you adjust for inflation, the group found, tax revenues actually fell by 1.6 percent. (This calculation is for the first 11 months of fiscal 2018, compared to the first 11 months of 2017. The group had not calculated the data for the full year by our publication time, but the differences from adding the 12th month should be minor.)
You can also look at tax revenues as a percentage of gross domestic product — essentially, factoring in economic growth which should, in turn, generate tax revenues. In this case, GDP growth didn’t boost tax revenues proportionately — this measure fell by 4.1 percent over the first 11 months of the fiscal year.
Finally, we can look at actual tax collections relative to the expectations of the nonpartisan Congressional Budget Office in June 2017, which was several months before the law passed. CBO’s projection of $3.531 trillion in tax collections was based on population growth, inflation, wage growth, and other factors. By this standard, tax revenue fell short of the projection by 5.7 percent.
Each of these measurements undercut Cruz’s argument that tax revenues increased.
"Tax revenues naturally grow with a growing economy," said Donald Marron, a fellow at the Urban Institute-Brookings Institution Tax Policy Center. "The economy has been doing well. Revenues, however, haven’t grown as much. So the tax cuts reduced revenues relative to what they would have been, just as every serious analyst predicted."
In addition, Cruz portrayed a direct relationship: The tax law was passed, and revenue went up. But that’s questionable.
We can probe this question by separating out the months in which the old tax law prevailed and looking only at the months in which the new tax law was the primary factor shaping tax payments. Three months in fiscal 2018 were governed by the old law — October, November and December. Another two months — March and April — were governed by the new law, but were dominated by tax payments for income generated in 2017, and thus was predominantly shaped by the old law. A final month, September, had not produced final data by the time of our article.
That leaves six months in which it was the new law that shaped tax payments to the government — January, February, May, June, July and August.
And if you compare the cumulative collections for those six months in 2017 and 2018, tax collections actually declined by 3.8 percent between 2017 (when the old law was in force) and 2018 (when the new law was in force).
In this chart, the drop from 2017 to 2018 is clearly visible.
Catherine Frazier, a spokesman for Cruz, emphasized that Cruz was correct about the calculation using nominal dollars, "In fact, individual tax revenues this year are $96 billion higher than last year, even after cutting individual taxes," she said.
Cruz said that with the Republican-backed tax cut, "we’re seeing the result, and to date, federal tax revenues have gone up."
They have gone up by less than half of 1 percent in nominal dollars, one of the weakest increases since the end of World War II. They have actually fallen if you factor in inflation, growth in the economy, or prior projections for tax collections.
Cruz’s suggestion that the new tax law caused the nominal increase is dubious, since in the months when that new law was the primary mover of tax payments, collections actually fell by 3.8 percent.
We rate his statement Half True.
Ted Cruz, remarks in a Senate debate, Oct. 16, 2018
Committee for a Responsible Federal Budget, "No, Really, Tax Revenue Has Not Risen," Sept. 21, 2018
Committee for a Responsible Federal Budget, "Treasury: 2018 Deficit was $779 Billion," Oct. 15, 2018
U.S. Treasury Department, "Monthly Treasury Statement of Receipts and Outlays of the United States Government For Fiscal Year 2018 Through August 31, 2018," accessed Oct. 17, 2018
Office of Management and Budget, "Table 1.1—Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789–2023," accessed Oct. 18, 2018
Email interview with Steve Ellis, vice president of Taxpayers for Common Sense, Oct. 17, 2017
Email interview with Patrick Newton, spokesman for the Committee for a Responsible Federal Budget, Oct. 17, 2018
Email interview with John Buhl, spokesman for the Tax Foundation, Oct. 17, 2018
Email interview with Donald Marron, fellow at the Urban Institute-Brookings Institution Tax Policy Center, Oct. 17, 2018
Email interview with Catherine Frazier, spokesman for Ted Cruz, Oct. 17, 2018
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