The TCJA also reduced marginal tax rates on individual income, and the implementation of new withholding tables in February by the Internal Revenue Service has led to diminished tax collections from that source. According to the Congressional Budget Office (CBO), withholding rose by 1.9 percent in the first nine months of the year, from $1,800 billion to $1,833 billion. Without any change in law, withholding would normally grow at about the same rate as nominal GDP; however, the growth in withholding so far this fiscal year has been less than half of the rate of growth of the economy.

The TCJA’s Positive Economic Effects May Be Short-Lived

On July 27, the Commerce Department announced that the United States economy grew at an annual rate of 4.1 percent in the second quarter of 2018 – the fastest rate of growth since 2014. That aligned with the expectations of many economists, who anticipated a temporary boost in economic growth due to the tax cuts included in TCJA. However, in the longer-term, the TCJA’s economic benefits are likely to decline and the damaging fiscal consequences of the TCJA will exacerbate our nation's fiscal challenges.

An analysis published in June by the Tax Policy Center highlights those concerns:

TCJA will stimulate the economy in the near term. But, most models indicate that the long-term impact on GDP will be small. . . . It will make the distribution of after-tax income more unequal, raise federal debt, and impose burdens on future generations.

CBO’s April projections also point to a modest impact on economic growth from the TCJA. For both 2018 and 2019, CBO estimates that the TCJA will increase the rate of real GDP growth by 0.3 percentage points; however, by 2023, the TCJA would have essentially no effect on the rate of real GDP growth.

Several other organizations agree that the TCJA will increase GDP in the short term, before the effect diminishes. CBO identified eight other organizations that produced analyses of the final version of the TCJA and its longer term effects. Just one of those organizations, the Tax Foundation, projects that the TCJA’s boost to GDP will be larger in ten years than it is over the next five years.

The TCJA Took Our Debt Outlook from Bad to Worse

In CBO’s most recent baseline projections, the deficit would reach $1 trillion in 2020. The President’s Office of Management and Budget (OMB) recently updated its projections to show that the deficit could reach $1 trillion as early as next year. In both cases, the updated estimates represented a significant change from projections that didn’t fully incorporate recent legislation.

Those worsening budget deficit projections are in part a result of enactment of the TCJA. By CBO’s calculations, the deficit this year will be $164 billion larger because of the TCJA’s provisions. Over the 2018–2028 period, the cumulative deficit would be $1.9 trillion higher — $1.3 trillion from the direct effects of the legislation and $0.6 trillion from increased interest payments. Those totals include the effects on the economy of the provisions of the act and incorporate the assumption that the lower tax rates on individual income and other provisions expire as scheduled.