Has TCJA Paid For Itself?
In early 2018, following passage of the Tax Cuts and Jobs Act (TCJA), the Congressional Budget Office projected revenue collection would total about $27.0 trillion between Fiscal Years 2018 and 2024, an estimate that incorporated roughly $1.8 trillion in lower revenue from the net tax cuts in the bill and nearly $400 billion of positive revenue feedback from the estimated growth effects of the bill.
Actual revenue collection through 2024 came in $1.5 trillion higher than projected,1 totaling $28.5 trillion through 2024, which has led some to conclude that the TCJA’s economic growth effects were larger than originally forecast and that the TCJA largely or fully paid for itself.2 However, the data show that all of this additional revenue can be explained either by higher inflation or by a temporary one-time revenue surge that came in 2022 – the fifth year after the passage of the TCJA and immediately on the heels of a pandemic and inflation crisis.
In this piece we explain:
- Roughly two-thirds of the higher-than-projected revenue – about $1 trillion out of $1.5 trillion – can be explained by higher nominal revenue due to inflation rather than increases in real (inflation-adjusted) revenue.
- More than the entirety ($576 billion out of $478 billion) of the higher-than-projected real revenue collection came from a one-time, temporary revenue surge in 2022 alone, five years after the TCJA began.
- The 2022 revenue surge is unlikely to be related much if at all to the TCJA and was instead likely caused by the temporary effects of spiking inflation – before the tax code adjusted, a windfall of capital gains realizations, and general recovery from the pandemic recession.
- Outside of 2022, current and projected revenue came in about $100 billion under CBO’s 2018 projections on a real (inflation-adjusted) basis – a modest 0.5 percent below projections.
Ultimately, it is impossible to say with certainty exactly how much the TCJA cut revenue given the many other intervening economic (recession, immigration surge, inflation) and policy changes (tariffs, other tax changes, pandemic response measures) that occurred over the time period. However, it is almost certainly true that the TCJA meaningfully reduced revenue from where it would have been absent the TCJA.
Real Revenue Collection Closely Matches CBO’s Projections
In April 2018 following passage of the TCJA, the Congressional Budget Office (CBO) projected revenue collection would total $27.0 trillion from 2018 through 2024, with the TCJA responsible for about $1.4 trillion of net revenue loss (after accounting for dynamic effects) from the previous projection.
Based on actual data, actual revenue totaled $28.5 trillion, $1.5 trillion higher than CBO’s 2018 projections.
But two-thirds of this difference disappears when adjusting for inflation. While CBO projected roughly 16 percent cumulative inflation between 2018 and 2024, prices actually rose by 25 percent.3 Adjusted for inflation, actual revenue closely matched CBO’s 2018 forecast with one outlier year (2022, addressed below), running counter to claims that higher economic growth from the TCJA led to a sustained increase in revenue collection.4
Additional Revenue is More Than Entirely from 2022 and Unrelated to TCJA
Adjusting for inflation, total revenue collection through 2024 was roughly $480 billion above projections. But more than the entirety of this increase, on net, is from a one-time temporary revenue spike in 2022. Other ebbs and flows in revenue, relative to projections, were modest, offsetting, and actually led real revenue collection to be slightly below projected levels.
The one-time revenue spike in 2022 – which disappeared by 2023 – can be explained by the COVID-19 pandemic, response, and recovery.
Specifically, much of the revenue spike came from the massive burst of inflation in 2021 and 2022, which dramatically boosted nominal taxable incomes, immediately pushing households into higher income brackets before the brackets were indexed for inflation in the following year.5 2022 revenue also spiked due to taxes owed on a one-time surge in capital gains realizations in 2021 as a result of a boom in asset prices (partially driven by low interest rates), an increase in trading volumes, and the 2021 cryptocurrency bull market. Other factors, including the rapid economic recovery following the pandemic, also fueled this one-time revenue boost.6
None of these effects persisted, and real revenue – adjusted for timing shifts that pushed some revenue collection from FY 2023 to FY 2024 – returned to projected levels by 2023.
After adjusting for inflation, the revenue spike in 2022 alone explained more than all of the additional revenue collected through 2024.
Comparing CBO Revenue Projections and Actual Revenue, Fiscal Years 2018-2024
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2018-2024 | 2018-2024 w/o 2022 | |
|---|---|---|---|---|---|---|---|---|---|
| Nominal Revenue (billions) | |||||||||
| 2018 Projection | $3,338 | $3,490 | $3,678 | $3,827 | $4,012 | $4,228 | $4,444 | $27,015 | $23,003 |
| Actual Revenue | $3,330 | $3,463 | $3,421 | $4,047 | $4,897 | $4,439 | $4,918 | $28,517 | $23,619 |
| Difference | -$8 | -$26 | -$256 | +$221 | +$885 | +$212 | +$474 | +$1,501 | +$616 |
| -0.2% | -0.8% | -7.0% | +5.8% | +22.1% | +5.0% | +10.7% | +5.6% | +2.7% | |
| Real Revenue (2017 Dollars, billions) | |||||||||
| 2018 Projection | $3,290 | $3,374 | $3,482 | $3,546 | $3,639 | $3,753 | $3,861 | $24,944 | $21,305 |
| Actual Revenue | $3,273 | $3,342 | $3,259 | $3,727 | $4,215 | $3,654 | $3,951 | $25,423 | $21,207 |
| Difference | -$17 | -$31 | -$223 | +$181 | +$576 | -$99 | +$91 | +$478 | -$98 |
| -0.5% | -0.9% | -6.4% | +5.1% | +15.8% | -2.6% | +2.4% | +1.9% | -0.5% | |
Source: CRFB calculations using CBO and BEA data. 2017 dollars adjusted using the GDP price index. Figures may not sum due to rounding.
Said another way, real (inflation-adjusted) revenue for all years from 2018 through 2024 except 2022 nearly matches CBO’s 2018 projections – coming in $100 billion lower, but within 0.5 percent, of projections. Year-by-year differences mainly reflect pandemic fluctuations and movement in filing deadlines, with “tax day” moved from April of 2023 to October of 2023 for those in California, Georgia, and other areas hit by natural disaster in that year (pushing revenue collection from FY 2023 to FY 2024).
Comparing Projections to Actuals Has Limited Value
Even if revenue did not come close to CBO’s 2018 projections, one could not conclude the difference is due to an incorrect estimate of the TCJA. Dozens if not hundreds of different confounding factors could lead revenue to differ from projections, including uncertainty in 2018 as it related to future economic activity and future policy. Most significantly, the economic consequences of the COVID-19 pandemic and the fiscal and monetary response make it almost impossible to compare pre- and post-pandemic projections. Policymakers have also enacted a number of tax cuts and increases since the TCJA passed, including the implementation of significant new tariffs. Additionally, immigration – and therefore the size of the taxpaying population – has been far higher than projected.
For these and other reasons, comparing actual revenue to 2018 projections says little about the actual revenue impact of the TCJA.
However, evidence on the TCJA itself suggests that if anything it has likely decreased revenue by more than it was originally projected to in 2018. On a conventional basis, the Joint Committee on Taxation (JCT) and CBO estimate the impact of extending the TCJA is 50 percent larger than believed in 2018 due to higher estimated nominal revenue loss from the tax-cutting provisions and less revenue gain from the base-broadening provisions. For example, the cost of extending 100 percent bonus depreciation has roughly doubled while the revenue-raising provision limiting the deduction of pass-through business losses against ordinary income raises less than one-fifth of original projections. Recent research also suggests dynamic effects of the TCJA extension are “broadly consistent,” and perhaps slightly smaller, than originally estimated. The claim that the previous tax cuts were substantially more pro-growth than CBO estimated is simply not backed up by the numbers.
There is a significant risk that the narrative that the tax cuts came closer to paying for themselves than projected will be used to argue extensions do not need to be offset. This is a dangerous path to take. The fiscal situation is far worse today than when the TCJA was passed, with debt at nearly 100 percent of GDP and interest costs at 3.1 percent of GDP – compared to 75 percent and 1.4 percent before TCJA was enacted. This means further borrowing is likely to be even more detrimental to the economy than it was when debt was lower. Meanwhile, the tax cuts being considered for extension are likely to grow the economy by significantly less than those that are already permanent – estimates suggest that extension will pay for no more than 14 percent of itself and that the effects could be negative on a dynamic basis.
1 This analysis emphasizes revenue collection through 2024 because that is the most recent data available. However, prior claims have generally focused on the $1 trillion of revenue above projections through 2023. Using these figures tells a similar story as this analysis – that the revenue surge came from inflation and in a single year (2022). Actual revenue collection through 2023 totaled $23.6 trillion versus a $22.6 trillion projection; inflation-adjusted revenue totaled $21.5 trillion versus a $21.1 trillion projection. More than the entirety of the inflation-adjusted increase came in 2022, and absent that year total real revenue collection came in almost $200 billion below 2018 projections.
2 Some have also compared revenue collection to CBO’s pre-TCJA 2017 projections, noting that revenue collection was roughly $350 billion higher than projected despite roughly $1.4 trillion of projected tax cuts (net of dynamic gains). However, in addition to the factors described elsewhere in this piece – roughly $1 trillion of higher revenue as a result of inflation and $576 billion in real (2017 dollars) revenue from the 2022 revenue surge – CBO’s April 2018 projections revised revenue upward by roughly $350 billion through 2024 due to economic reasons unrelated to the TCJA. In other words, the entirety of the difference revenue estimates pre-TCJA and actual collection can be explained by revisions made in 2018 that were explicitly unrelated to TCJA. Because CBO’s TCJA estimate was made in the context of its April 2018 baseline and because this upward revision was explicitly unrelated to TCJA (and based largely on pre-TCJA data), the appropriate revenue comparison is from CBO’s 2018 baseline rather than their 2017 baseline.
3 Adjusted for inflation using the Gross Domestic Product (GDP) price index to 2017 dollars; using other chain-weighted price indices, like the Personal Consumption Expenditures (PCE) price index or the chained Consumer Price Index, would result in similar but not identical results. Using different base years would make all numbers higher or lower by the same proportions.
4 Real GDP has also exceeded CBO’s 2018 projections, but the real revenue gains from higher GDP have been offset by other factors. It’s also important to note that the higher real GDP has mostly come after the COVID-19 pandemic and can be explained in part by higher-than-expected immigration (which CBO estimates has boosted GDP by roughly 1 percent) and by the economy being pushed above its sustainable potential (by roughly 1 percent, according to CBO), likely due to aggressive fiscal and monetary stimulus during and after the pandemic.
5 Higher inflation also significantly boosted business tax revenue, as businesses sold goods and services at the post-inflation prices while deducting many of their expenses at the pre-inflation price.
6 Additional smaller factors contributing to the 2022 revenue spike include the collection of employer payroll tax contributions deferred under the 2020 CARES Act, partial taxation of expanded unemployment benefits, increases in state unemployment taxes, and elevated Federal Reserve remittances due to its pandemic-era operations.
