The US federal budget seems out of control. Funding spats and debt-ceiling standoffs routinely threaten to force defaults and shutdowns. America's once-unassailable credit rating keeps slipping. Has the government simply become too big to manage?
No, but it has been so poorly managed that one could be forgiven for reaching that conclusion. Congress must do better, and next year it will have a rare opportunity.
In 2017, Congress passed a law commonly known as the Tax Cuts and Jobs Act. Its authors sold it as a fiscal miracle drug: It would simplify taxes, make businesses more competitive, increase wages, create better jobs, boost economic growth and raise revenue. Now the evidence is in, and the TCJA looks set to be remembered as an outstanding fiscal disaster. By 2027, it will have cost almost $2 trillion, while failing to deliver the promised benefits.
Economists typically expect a tax cut to have the greatest impact in its first year. In 2019, the Congressional Research Service, charged with briefing Congress on its own policies, concluded that the TCJA didn’t increase wages and had little to no effect on economic growth. Researchers at the International Monetary Fund reached a similar conclusion about private investment. Companies themselves reported they didn’t use the tax cut to invest, hire or give raises.
It’s hard to see how policy makers could have expected anything different, given the history of tax cuts. Similar initiatives in 2001 and 2003 didn’t strengthen the economy or pay for themselves, either. Instead, they primarily benefited the wealthiest households, while sharply increasing federal deficits and debt. Regular Americans appear to understand this: They mostly didn’t support the TCJA, even as it was being passed.
The mismanagement becomes all the more galling when one considers how the money could have been spent. Two trillion dollars over ten years isn’t chump change. The 2021 expansion of the Child Tax Credit, which temporarily lifted almost 3 million children out of poverty, would have cost $1.6 trillion to extend for ten years — an expense that lawmakers considered too great. And that would still leave $400 billion, enough to provide universal child care and two years of free preschool to all interested US families.
