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Once Again, CBO Stacks the Deck Against Tax Relief for American Families and Workers

December 09, 2024

Washington, D.C. – Allowing the 2017 Trump tax cuts to expire will result in weak economic growth and private investment, Americans earning less and working fewer hours, but in its latest publication, the Congressional Budget Office (CBO) once again gets its analysis of tax cuts wrong. In its missive on the impacts of extending the Trump tax cuts, CBO downplayed the harm of a $4.6 trillion tax hike as merely short term, while ridiculously claiming there would be greater investment over the long term.

Ways and Means Committee Chairman Jason Smith (MO-08) issued the following statement:

“Extending the Trump tax cuts for workers, families, farmers, and small businesses is a crucial part of a larger pro-growth agenda that the American people are demanding. Most importantly, Congress has a responsibility to ensure that these tax cuts are extended and that those we represent can keep more money in their pockets after a disastrous four years of the Biden-Harris Administration that added $10 trillion in new spending and fueled a more than 20 percent spike in prices. 

“Democrats successfully leveraged CBO’s bias towards more government spending when passing their $2 trillion so-called stimulus, and then again when they passed their inflationary spending bill, using fake payfors that led to skyrocketing costs and the ability to claim policies like giving the IRS an $80 billion pay raise didn’t add to the deficit. Unfortunately, CBO is simply not equipped to calculate the costs of the totality of all pro-growth policies that President Trump has pledged, including regulatory reform, which would address over $3 trillion in costs. 

“CBO will always predict a dark future when Republicans propose tax relief – but the reality is never so dire. CBO’s own fiscal year 2024 numbers reveal that corporate receipts came in at $529 billion, exceeding CBO’s $421 billion prediction made after the passage of the 2017 Trump tax cuts.

“No one in their right mind believes that allowing the Trump tax cuts to expire – resulting in a $4 trillion tax increase – would have anything but a negative impact on the economy. Republicans will extend these tax cuts and keep our promise to the American people to make America’s economy strong again.”

This is the latest swing and miss by the congressional scorekeeper, whose estimates of economic growth and the true cost of legislation are routinely incorrect. 

For example:

  • Trump’s Tax Cuts Far Outperformed CBO Estimates: The Trump tax cuts resulted in economic growth that was a full percentage point above CBO’s initial forecast in 2018 and 2019.
    • In the decade before the Trump Tax Cuts, average GDP growth was 1.5 percent. In the two years following the Trump Tax Cuts, average GDP growth was 2.6 percent. 
    • In 2019, CBO revised its economic forecast to show more than $7 trillion in additional GDP over the 2017-2027 period, compared to CBO’s pre-2017 forecast. 
    • In FY23, federal tax revenues were $1 trillion higher than they were in the immediate year preceding passage of the Trump Tax Cuts. 
    • In the 5 years following the Trump Tax Cuts (FY19-23), tax revenues averaged $170 billion per year above CBO’s post-2017 projections. 
    • For FY22, tax revenues were $884 billion higher than CBO’s post-2017 projections for 2022.
    • FY22 tax revenues were 48 percent higher than the year immediately prior to passage of the Trump Tax Cuts. 
    • For FY23, tax revenues were $200 billion higher than CBO’s post-2017 projections for 2023. 
    • For FY22 and FY23, combined corporate tax revenues reached record highs, exceeding CBO projections by $103 billion. 
    • Through the first 9 months of FY24, tax receipts are $430 billion higher than the entire year immediately prior to passage of the Trump Tax Cuts. 
    • Relative to CBO’s predictions after the Trump Tax Cuts, combined revenues are $502 billion above what CBO predicted they would be. 
  • CBO’s Fuzzy Math Helped Pass the Inflation Reduction Act: CBO initially scored the Democrats’ Green Tax Handouts as costing $271 billion – which was crucial to allowing Democrats to use the reconciliation process to pass the law. Six months later, after the legislation became law, CBO revised their initial cost estimate to more than 2.5 times that amount to $663 billion. Numerous outside entities have scored the IRA Green Tax Handouts as costing well in excess of $1 trillion. 
  • A Missing $4.2 Trillion: CBO predicted the federal government would raise $30.1 trillion in revenue from FY10–FY18. Their estimate was $4.2 trillion short, or about 14 percent less than originally estimated.
  • Where’s the Growth CBO Forecasted? During the peak of the Great Recession, U.S. GDP declined by 2.9 percent, which was a surprise to CBO, which had predicted real GDP growth of 2.3 percent. CBO recentlyoverestimated revenues by 11 percent and underestimated outlays by 9 percent.

Background:

Key Individual Tax Policies from the Trump Tax Cuts Set to Expire if Congress Fails to Act

  • The average taxpayer would see a 22 percent tax hike if the Trump Tax Cuts expire.
  • A family of four making $80,610, the median income in the United States, would see a $1,695 tax increase if the Trump Tax Cuts expire.
    • This is worth about 9 weeks of groceries to a typical family of four across the country.
  • 40 million families would see their household’s Child Tax Credit cut in half.
  • 90 percent of all taxpayers would see their Guaranteed Deduction slashed in half.
  • 26 million small businesses would be hit with a 43.4 percent tax rate if the 199A Small Business Deduction expires.
  • 7 million taxpayers would be impacted by the return of the Alternative Minimum Tax
  • 2 million family-owned farms would have their Death Tax Exemption slashed in half next year.

Proven, Positive Economic Impact of the 2017 Trump Tax Cuts

  • 1 percent faster economic growth than CBO projected.
  • Over 20 percent increase in total U.S. investment – including an 18 percent increase in R&D investment.
  • 4.9 percent increase in wages in 2018 and 2019, the fastest 2-year growth in real wages in 20 years.
  • 50 percent higher wage growth for workers in the lowest 10 percent of income compared to those in the highest 10 percent.
  • 37 percent increase in American families’ net worth. 
  • Lowest poverty rate in U.S. history – including all-time lows in unemployment for African American and Hispanic workers and those without a college degree.
  • Nearly 5 million jobs.