[ajzinsbwbs]

To be more correct, it’s a 7% decrease in income over $5,000,000 (if the total tax rate on that income was 50% before and went to 53.5%, the amount remaining dropped by 7%).

I think this point is under-appreciated. As the top federal tax rate has dropped over the decades, each additional percentage point drop has given less proportional value to top-rate-payers, while costing proportionally more of remaining federal revenue. In that sense, the lower the tax rate already is, the more expensive a tax cut is to the government. The higher the tax rate already is, the more expensive a tax increase is to taxpayers.

This is why tax cuts under Bush and Trump blew up the federal budget - tax rates were already pretty low, so quite deep cuts to revenue were required to deliver any notable benefit to high-rate taxpayers. It’s hard to make rich people much richer by cutting taxes when they are already keeping most of their income. In the case of the Trump tax cut, rates were already so low it required raising taxes on some to cut for others.

On the other hand, you can go back and find times when after-tax income of top rate payers doubled because the top rate dropped from eg. 91% to 77%, which delivered a lot of relative value to those taxpayers while fitting more easily into the federal budget (although as always, it’s probably more complicated as tax bills make changes to deductions when they change rates).

[bhupy]

> This is why tax cuts under Bush and Trump blew up the federal budget - tax rates were already pretty low, so quite deep cuts to revenue were required to deliver any notable benefit to high-rate taxpayers

I just want to point out that after the Trump tax cuts went into effect, revenue increased[1].

[1] https://www.thebalance.com/current-u-s-federal-government-ta...

[paulryanrogers]

Could it be because some loopholes hiding or deducting funds became less lucrative?

[bhupy]

No, it's because GDP increased (by a lot). Federal tax receipts as a percentage of GDP has been basically flat since WW2:

https://fred.stlouisfed.org/series/FYFRGDA188S

[ajzinsbwbs]

GDP was growing before and after the Trump tax cut, so growth in tax revenue year over year was expected. The Trump tax cuts went into effect in 2018, and according to your link tax revenues increased from 3.32 to 3.33 trillion that year, which is a 0.3% increase. This was during a year when GDP grew by 5.2%. In other words, revenues fell behind GDP by 4.9%.

Note that I used nominal GDP growth because the linked article used nominal tax revenue. To adjust for inflation we subtract the inflation rate from both sides and we’d get the same 4.9% fallback in tax growth relative to GDP growth.

[bhupy]

Oh yeah it's definitely debatable if tax revenue would have grown faster in a counterfactual without the cuts, but that debate is orthogonal to the point you were making about "blowing up the federal budget", which is strictly a function of receipts and outlays. If the receipts increased, then the budgets woes are clearly a result of increased outlays.

Federal tax receipts as a % of GDP has been largely flat since WW2:

https://fred.stlouisfed.org/series/FYFRGDA188S

[ajzinsbwbs]

Your link shows the ratio decreasing from 16.97% to 16.16% in 2018 when the bill went into effect. That’s a 5% decrease, which agrees with my above math.

Overall your chart shows the ratio has a range of 19.75% to 14.42% in the past 20 years, tracking changes to the tax code and business cycle, exactly in the way you’d expect. That’s a 36% difference between the min and max ie. not flat.

I think lawmakers supporting tax cuts try to claim that tax revenues are not sensitive to tax rates because it would be convenient if true when trying to pass a tax cut. The facts don’t bear it out, however.

I think the roots of this argument are in the theory of the Laffer Curve: https://en.m.wikipedia.org/wiki/Laffer_curve The Laffer Curve was used to argue for tax cuts when the top marginal rate was 70%. People are still trying to make this argument, but I think they missed the part where it’s supposed to be a curve, so the result of cutting taxes from 70% is not the same as cutting them from 35%.

[bhupy]

Right, everyone knows about the Laffer curve. It's hilariously simplistic.

> I think lawmakers supporting tax cuts try to claim that tax revenues are not sensitive to tax rates because it would be convenient if true when trying to pass a tax cut.

The point of the chart going back to WW2 is to show that it's a little more complicated and we can't draw conclusions either way.

And circling back to the original point of contention, spending is not function of GDP, or in theory it shouldn't be. Spending is a function of population. So if federal tax revenue increases even after a tax cut, but deficit increases, then the culprit isn't necessarily the tax cut, the culprit is the spending increase.

[ajzinsbwbs]

You also need to include inflation. Tax receipts actually fell on an inflation-adjusted basis in 2018. Absent any changes in government policy, you’d expect expenses to roughly follow inflation plus population growth, and revenues to roughly follow GDP.

> The point of the chart going back to WW2 is to show that it's a little more complicated and we can't draw conclusions either way.

I don’t think this is correct. Yes, the economy is complicated. No, that doesn’t mean when cutting taxes we can ignore the resulting increase in the budget deficit. A claim that cutting taxes won’t increase the deficit constrains you to make other claims according to the GDP = C + G + I + X equation, and we should demand that lawmakers be specific about those claims.

As I pointed out, the chart is not really flat. The line actually goes up and down.