Washington, D.C. — The tax legislation that President Donald Trump signed in December 2017 significantly reduced federal revenues, with the largest tax cuts going to the richest Americans. Following the enactment of these tax cuts, federal revenues fell dramatically and remain below projections of federal revenues made prior to their enactment. An issue brief from the Center for American Progress provides new analysis of economic trends and federal revenues that explain how the Trump tax cuts’ low revenues make it difficult for the country to invest in people and their neighborhoods.
Some of the key takeaways from the issue brief include:
- Federal revenues remain below the levels that were projected before the enactment of the tax law—regardless of whether measured as a percentage of the economy, adjusted just for inflation, or adjusted for both inflation and growth in the adult population.
- Revenues as a percentage of the economy are particularly low given the strength of the economy. Between 1986 and the enactment of the Bush tax cuts in 2001, every year in which the annual unemployment rate was below 5 percent saw revenues exceed 19 percent of gross domestic product (GDP). Since then, in only one of nine years with the unemployment rate that low did revenues exceed 19 percent of GDP—and it was an outlier year due to the COVID-19 recovery.
- Increases in nominal revenues are because of COVID-19 policies, not the Trump tax cuts. Other politicians have cited increases in nominal revenues relative to pre-tax cut projections. But much of this reflects COVID-19 policies, the expiration of the tax law’s business provisions that proponents want to extend, and higher-than-expected inflation. In 2023, nominal revenues were 6 percent below pre-pandemic projections after adjusting for inflation.
“The bottom line is the Trump tax cuts were responsible for historically low revenue as a percentage of GDP. These tax cuts were a handout to the wealthiest Americans and failed to deliver on its promises to low-income and middle-class Americans,” said Bobby Kogan, senior director of federal budget policy at CAP and co-author of the issue brief. “With a significant portion of the Trump tax cuts set to expire at the end of 2025, Congress has an opportunity to improve the tax code to make it fairer and to raise revenues to invest in American families and communities.”
Read the issue brief: “The Trump Tax Cuts Led to Record-Low, Not High, Revenues Outside of a Recession” by Bobby Kogan, Brendan Duke, and Jessica Vela
For more information or to speak with an expert, please contact Sarah Nadeau at [email protected].