and corporate taxes comprised total federal tax revenues. In fiscal year 2018, corporate income taxes comprised 6.1% of federal tax revenue compared to 9.0% in 2017. The 6.1% rate was the lowest rate ever based on Office of Management and Budget data available since 1934. Conversely in fiscal year 2018, the contribution of individual income taxes to total federal tax revenue increased. Federal income tax revenue from individual income taxes comprised 50.6% of federal tax revenue in fiscal year 2018 compared to 47.9% in 2017. The 50.6% rate for individual income taxes was not the highest rate ever based on Office of Management and Budget data available since 1934. The 2018 tax cuts contributed to growing federal deficits. The graph below shows the U.S. federal budget surplus or deficit since 1980. The shaded areas of the graph indicate an economic recession. Note the economic expansion in the 1990s led to budget surpluses. Following the recession of the early 2000s and the financial and economic crisis of the late 2000s, the deficit once again was reduced as tax cuts helped spur economic growth. The tax cuts in 2018 were different. The tax cuts were not made to help the economy recover from a recession; there was no recession. Taxes were cut, the rate of economic growth temporarily increased, but the deficit increased . Since 2016 the budget deficit has increased; and increasing deficits during an economic expansion were problematic. Federal Budget Surplus or Deficit
Annual amount of Federal Budget Surplus or Deficit in Millions of Dollars (1/1/80-9/30/19) Source: Graph from Federal Reserve Economic Database (FRED) based on data from the U.S. Office of Management and Budget
Federal debt as a percentage of GDP provides a relative measure as to how the federal debt financially burdens the country. That number is at record levels and will likely continue to go up. Total federal debt increases can be mitigated by Federal Reserve policy which includes the purchase of Treasury securities, but that ability is limited. The graph below provides a long-term perspective on the amount of federal debt outstanding relative to the amount of income (GDP) generated in the U.S. Relatively speaking, federal deficits and increasing federal debt were not much of an issue until the 1980s. Federal debt to GDP rose to over 50% by the end of the decade. In the 1990s, following a decade early recession, federal debt to GDP topped 65%; federal budget surpluses helped reduce the level to approximately 55% by the end of the decade. The return of budget deficits after the turn of the century increased federal debt to GDP to nearly 65% prior to the financial and economic crisis of 2007-2009. Federal debt to GDP now stands at over 100%.
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Center for Business and Economic Insight - CBEI EXTRA!
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