Since fiscal 2015, when the deficit hit a post-recession low of 2.6 percent of GDP, revenue is up 3.8 percent and spending up 14 percent. 1 But while that makes it look as if spending is the main driver of the recent growth in the deficit, it’s really both.
That’s because revenue growth of 3.8 percent over three years is quite weak, given the circumstances. One factor is the Tax Cuts and Jobs Act of 2017, which took effect Jan. 1 of this year. Federal receipts are still up so far this fiscal year despite the tax cuts, but only by $33 billion, or 1.3 percent. Tax revenue virtually always goes up when the economy is growing, and all indications are that receipts would be rising faster if it weren’t for the new tax law. Receipts from corporate income taxes — the main focus of the tax act — are actually down $62 billion, or 28 percent, over the same period in the previous fiscal year, while this fiscal year’s increase in overall tax revenue substantially trails that of recent years during which the economy was growing at a similar speed. (For reference, real GDP grew 3.2 percent in fiscal 2014, 2.4 percent in fiscal 2015, 1.5 percent in fiscal 2016 and 2.3 percent in fiscal 2017, and Bloomberg Economics forecasts that it will grow 2.8 percent in fiscal 2018. 2 )
