Issues & Insights

No, Tax Cuts Aren’t Causing the Latest Deficit Spike

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The Treasury Department reported a $208 billion deficit for the month of May  — which is $61 billion higher than May 2018. To put that in perspective, the deficit for the entire year of 2007 was $161 billion.

In the first eight months of the current fiscal year, red ink has already reached $738 billion. Even adjusting for inflation, the total annual federal deficit has exceeded that only six times in the nation’s history (five of them under President Obama).

Not surprisingly, the Republican tax cuts are taking the blame for this year’s extraordinary deficits.

But wait a minute. Overall federal revenues were up in May by $15 billion — that’s a 7% gain over May 2018 — the latest monthly Treasury report shows.

So where did May’s big deficit increase come from? Well, spending in that month was $440 billion. That’s $76 billion — or 21% — more than last year.

Some of that increase in spending in May was the result of a quirk of the calendar. But the same trend holds true for the fiscal year.

For the first eight months of the fiscal year (which started last October), revenues climbed more than $50 billion, compared with the first eight months of the previous fiscal year.

The press has focused on the fact that Trump’s tariffs boosted customs duties by $20 billion so far this year.

But that conveniently overlooks the fact that individual income tax revenues are up by $17 billion, and payroll taxes are up more than $30 billion. Both are signs of a healthy job market that pushed the unemployment rate to 50-year lows and is boosting wages as the labor market tightens.

Over these same eight months, however, spending exploded by almost $257 billion — an eye-popping 10% increase.

And where have the big spending increases come from? Mostly from entitlements and interest payments on the national debt.

Spending by Health and Human Services — which runs Medicare and Medicaid — is up more than $100 billion so far this year. Social Security spending is up by $47 billion. VA spending is up $26 billion. Interest on the debt, up $36 billion.

Spending on aid to children and families, in contrast, climbed a mere $1 billion.

And while overall Defense spending is up $49 billion, less than half of that — $20 billion — went toward new equipment and R&D.

So once again, we have the data showing the out-of-control spending is driving up the deficit, not Trump’s tax cuts. Yet it’s tax cuts that get the blame.

This is the swamp in action. The denizens of Washington want the government to grow perpetually bigger. So blaming deficits on tax cuts keeps the focus off the spending side of the equation.

The truth is that any tax hikes would, at best, only mask the problem of runaway entitlements, and put off the inevitable day of reckoning.

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John Merline

Veteran journalist John Merline was Deputy Editor of Commentary and Opinion at Investor's Business Daily. Before IBD, he launched and edited the Opinion section of AOL News, and was a member of the editorial board of USA Today, where he continues to be a regular contributor. He’s been published in the Washington Post, National Review, Detroit News, Cleveland Plain Dealer, Forbes, and numerous other publications. He is regular commentator on the One America News Network and on local talk radio. He got his start in journalism under the tutelage of M. Stanton Evans.


  • The explosive growth of government spending is just beginning. The baby boom retirement wave is continuing to build. If Democrats gain control of government, spending will explode. Increased Medicaid spending is a result of Obamacare. Democrats during Obama’s reign increased spending in many areas such as disability benefits, food stamps, unemployment benefits, Medicaid, … Republicans rolled back some of these increases, notably unemployment benefits. Democrats wanted unemployment benefits to stretch to 3 years. Republicans forced unemployment benefits back to 6 to 12 months.



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About Issues & Insights

Issues & Insights is a new site formed by the seasoned journalists behind the legendary IBD Editorials page. Our goal is to bring our decades of combined journalism experience to help readers understand the top issues of the day. We’re doing this on a voluntary basis, because we believe the nation needs the kind of cogent, rational, data-driven, fact-based commentary that we can provide. 

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