Federal Deficit

The federal deficit is closely linked to Trump's tax changes, particularly the Tax Cuts and Jobs Act (TCJA), which he signed into law in December 2017. The tax cuts were aimed at stimulating economic growth, but they also significantly impacted federal revenues, contributing to higher deficits. Here's how:

1. Reduction in Corporate Tax Rates

One of the central features of the TCJA was the reduction of the corporate income tax rate from 35% to 21%. While the goal was to encourage investment and boost economic growth, the immediate impact was a reduction in federal revenue. In the short term, this led to a widening deficit as the government collected less from corporations.
The estimated cost of cutting the corporate tax rate alone was projected to be around $1.5 trillion over a decade, contributing directly to the federal deficit.

2. Individual Tax Cuts

The TCJA also reduced income tax rates for individuals, across nearly all tax brackets, and increased the standard deduction. These cuts were designed to boost consumer spending and middle-class prosperity.
However, the cost of these individual tax cuts was estimated at about $1 trillion over 10 years. While the cuts were expected to stimulate the economy, they also reduced government revenue, adding to the deficit.
Importantly, these individual tax cuts are set to expire in 2025, which may have an impact on the deficit depending on whether Congress extends them or not.

3. Elimination of Certain Deductions and Tax Loopholes

The TCJA also eliminated or limited certain tax deductions, such as the state and local tax (SALT) deduction, which had a mixed impact on the deficit. While it saved the government money in the form of lower deductions, it also led to protests from high-tax states and may have contributed to slower economic growth in some regions.
The estimated revenue increase from these measures did not fully offset the cost of the tax cuts, meaning the deficit continued to rise.

4. Economic Growth Assumptions

The TCJA's supporters argued that the tax cuts would spur strong economic growth, which in turn would increase tax revenues over time. However, the actual growth rates in the years following the tax cuts were lower than expected, and the boost to tax revenues from increased growth has been weaker than anticipated.
As a result, the deficit continued to rise, even with the economic growth. The CBO estimated that the tax cuts would increase the deficit by roughly $1.9 trillion over a 10-year period, assuming no offsetting spending cuts.

5. Increased Government Spending

Trump's tax cuts were implemented at the same time as an increase in military and domestic spending. For example, the Trump administration oversaw a significant spending increase in defense and other areas, without corresponding spending cuts elsewhere. This spending, combined with reduced tax revenue, further exacerbated the deficit.
The combination of lower taxes and higher spending led to a substantial increase in the national debt. According to the Treasury Department, the national debt grew by approximately $7 trillion during Trump's presidency.

6. Impact on Future Deficits

Trump's tax policies are expected to continue influencing future deficits. The TCJA was designed with the assumption that tax cuts would lead to long-term economic growth and higher revenues. However, the fiscal impact of these tax cuts is still being debated.
Some economists argue that the tax cuts disproportionately benefited corporations and high-income earners, with little evidence that the benefits "trickled down" to the broader economy. As a result, many believe that the deficit could continue to rise unless significant changes are made to tax policy or government spending.

7. Forecasting Future Deficits

As of the latest projections, the federal deficit is expected to remain high in the coming years, partly due to the long-term effects of the TCJA. For example, if the individual tax cuts are extended beyond 2025, they could further increase the deficit.
Additionally, interest payments on the national debt are projected to increase as the debt itself grows, further stressing the federal budget.

Conclusion:

Trump's tax changes, particularly the TCJA, played a key role in widening the federal deficit during his presidency. While the tax cuts were aimed at stimulating economic growth and increasing corporate competitiveness, they led to a significant loss in federal revenue without the anticipated boost in economic activity to offset those losses. As a result, the federal deficit grew, and the national debt increased sharply, putting continued pressure on future fiscal policy. The long-term impact on the deficit will depend on whether future lawmakers choose to extend the tax cuts or make changes to spending and revenue policies.