It’s A Revenue Problem: The GOP’s Call for Spending Cuts Has It Backwards

By William Rice

It’s a revenue problem: that’s the biggest reason for federal budget deficits. And that’s true whether you’re looking at just the last few years or all the way back to the dawn of this century. Once we accept that reality we can confidently reject the cuts to vital public services that are the wrong-headed antidote mechanically offered by Republicans to the problem of public debt—and start to boost revenue with fairer taxes on the rich and corporations.   

The Congressional Budget Office recently estimated that the federal deficit for the fiscal year ended last month was $1.7 trillion, an increase of roughly $300 billion from the previous year. Significantly, spending was actually down slightly from FY2022—but revenue was down much more, by over $450 billion. As the White House’s Council of Economic Advisers (CEA) explains, some of that decline is because capital-gains-tax receipts fell in FY ’23 after a hot stock market jacked them up in ’22. 

But the CEA looks past the fluctuations to see a deeper pattern—one related to the 2017 Trump-GOP tax cuts, which mostly benefited the rich and corporations. It notes that the decline in federal revenue as a share of the economy that the CBO predicted after passage of the Republican law has largely come true. The CEA also points out that deficits as a share of the economy are higher now for any given level of unemployment than they were before Trump’s tax cuts. Deficits usually go down when unemployment does because fewer benefits are being paid out and more tax revenue is coming in—and that’s still true, but not as much as before. 

Republican tax cuts are the principal cause of deficits even if you look back past the Trump law. A study last spring from the Center for American Progress (CAP) found that over half of the growth in the federal deficits during the 21st century can be blamed on tax cuts mostly benefiting the wealthy and corporations passed by Republican Congresses and signed into law not only by Trump but earlier in the century by GOP President George W. Bush. If you take out emergency spending to cope with the Great Recession and the pandemic, tax cuts are responsible for 90% of the increase in deficits since 2000. 

Yet Republicans in Congress are willing to cut Social Security, Medicare, child tax credits and other investments in working families—all supposedly in the name of fiscal discipline. And instead of raising revenue with fairer taxes on the rich and corporations, they want to permanently extend parts of the 2017 Trump tax law scheduled to expire in 2026, expanding the deficit by another $3.85 trillion. We’ll never get deficits under control until the Republican Party accepts that the problem won’t be solved by cutting public services—because it’s a revenue problem.