Additional Information About the Effects of Public Law 115-97 on Revenues
CBO provides information about the effects of the December 2017 tax act (Public Law 115-97, initially titled the Tax Cuts and Jobs Act) and how revenues to date have differed from the projections CBO made after that legislation was enacted.
In response to a request from Senator Mike Braun, CBO provides additional information about the effects of the 2017 tax act on federal revenues. In short, revenues in fiscal years 2018 and 2019 were a bit lower than the Congressional Budget Office anticipated in early 2018, but whether that result is related to the effects of the tax act is unknown.
Although P.L. 115-97 (originally titled the Tax Cuts and Jobs Act) was enacted in December 2017, CBO first reported estimates of its full effects in April 2018 (see Appendix B in The Budget and Economic Outlook: 2018 to 2028. At that time, CBO estimated that the tax act would increase the deficit by $1.9 trillion over the 2018–2028 period. That estimate considered all changes to revenues and outlays, including the effects of macroeconomic feedback and changes in debt-service costs.
CBO has not subsequently revised its estimate of the effects of the 2017 tax act on the economy or on federal tax receipts. Nevertheless, the agency continues to evaluate incoming data that provide evidence on the effects of the legislation. In August 2019, CBO described the recent data that have become available and the insights they provide into the effects of the tax changes on revenues (see Box 1-1 in An Update to the Budget and Economic Outlook: 2019 to 2029).
Total receipts in 2018 were $8 billion (or 0.2 percent) lower than what CBO initially projected, and receipts in 2019 were $28 billion (or 0.8 percent) lower. In percentage terms, the differences between actual and projected receipts were larger for individual and corporate income tax receipts than for total receipts. Since April 2018, CBO has published four subsequent revisions to its revenue projections; together, those revisions reduced projected revenues over the 2018–2028 period by $700 billion (or 1.5 percent).
Revisions of that size are not unusual. Revenue projections are inherently uncertain, and actual outcomes would differ from CBO’s projections even if no changes were made to current law. In analyzing its baseline projections of revenues since 1982, CBO found that the mean absolute error—that is, the average of all errors without regard to whether they are positive or negative—was 2.2 percent for forecasts for the current year, 5.0 percent for projections for the subsequent fiscal year, and 10.1 percent for projections for the sixth year of the projection period.
The extent to which the relatively small errors in projected receipts for 2018 and 2019 and the downward revisions to projected receipts over the following decade were influenced by the effects of the 2017 tax act’s being larger or smaller than CBO projected or by other factors is not known. Those revisions to projected receipts reflect various factors, including revised economic projections, changes in tax modeling methodologies, and the incorporation of recent data on tax collections. The revisions do not reflect an explicit reassessment of the effects of the 2017 tax act, but they may be influenced by how those effects have unfolded over the past two years. For example, although CBO has revised downward projected receipts for 2020 by $58 billion (or 1.6 percent), largely to reflect weakness in recent tax collections, the extent to which those lower-than-expected receipts reflect the effects of the 2017 tax act or unrelated underlying factors is not known.
Although some preliminary information has become available from tax returns filed for the 2018 tax year—the first returns that reflect most of the changes made by the tax act—that information does not clearly indicate whether the tax act’s effects differed from those CBO estimated in April 2018. Indeed, tax returns for 2018 for those who received extensions were filed only within the past two weeks. Detailed information from 2018 tax returns is expected to become available in late 2020. Assessing the tax act’s effects on receipts will not be possible even then, however, because it is not possible to disentangle changes in revenues caused by the tax act from changes driven by other factors, such as the effects of trade barriers that might have reduced economic growth and thus held down tax receipts. CBO will continue to monitor data to assess the effects of the 2017 tax act and to update its projections of tax revenues under current law.