These short posts are part of a series to take stock of changes that may be coming during a Trump Administration.

Taxes & Deficits

1. The President’s proposed individual income tax cut would give an average tax break of about $122,400 to the top 1% and those who make $1 million and more would average a $317,000 tax cut. A middle-class family would see about a $500 reduction in federal income taxes while single-parent households would pay higher taxes due to the elimination of the Head of Household filing option.
2. Many tax experts believe the deficit will balloon under such a plan, but supporters say increased growth will generate enough income to offset the lost tax revenue from the reduced rates. One way to look at this is to compare budget deficits as a percent of gross domestic product after removing Social Security and the Postal Service (called “On Budget”).
   1. Big tax cuts: beginning of the Reagan and G.W. Bush terms.
   2. Big tax increases: beginning of Clinton’s term and halfway through Obama’s term, but only on the wealthy for the latter.
   3. On Budget Deficit as % of GDP:
      1. 87% higher during Reagan’s term vs. Carter’s term.
      2. 64% lower during Clinton’s term than G.H.W. Bush’s term.
      3. 94% higher during G.W. Bush’s term vs. Clinton’s term.
      4. 47% lower during 2^nd half of Obama term vs. 1^st half (Great Recession makes this hard to evaluate – it occurred during a time with low taxes). Last 4 years under Obama matched G.W. Bush’s 8 years.
3. 1. How about federal revenue and spending growth?
      1. Carter (4 years): Revenue +74%, Spending +59%,
      2. Reagan (8 years): Revenue +76%, Spending +80%,
      3. G.H.W. Bush’s (4 years): Revenue +20%, Spending +30%,
      4. Clinton (8 years): Revenue +86%, Spending +30%,
      5. G.W. Bush’s (8 years): Revenue +25%, Spending +67%,
      6. Obama (8 years): Revenue +29.4%, Spending +29.2%, and
      7. Obama’s last 4 years: Revenue +33%, Spending +9%.

3. At least since the Carter presidency:
   1. The deficit grew worse following tax cuts and improved following tax increases.
   2. Every Democratic president oversaw a period when federal revenue grew faster than federal spending.
   3. Every Republican president saw the opposite – federal spending growth outpaced federal revenue growth.
4. Conclusion
   1. Based on the historic data, the deficit as a percent of GDP is likely to increase as a result of President Trump’s individual income tax cut plan.