New Tax Proposal & The Federal Deficit

Cogport posted a series of reports on Tax Policy in September and October last year.

Now with Trump in office, a new Tax Bill has been proposed.

So, it is time to update.

Here is Summary of Major Tax Proposals

• Make 2017 Tax Cuts Permanent: The proposal seeks to make the individual and estate tax cuts from the 2017 Tax Cuts and Jobs Act permanent, preventing their scheduled expiration at the end of 2025 .

• Eliminate Taxes on Specific Income:

  • Tips: Income from tips would no longer be subject to federal income tax.

  • Overtime Pay: Overtime earnings would be exempt from federal income tax.

  • Social Security Benefits: Social Security income would be tax-exempt, benefiting retirees.

• Introduce New Deductions:

  • Auto Loan Interest: Taxpayers could deduct interest paid on auto loans.

  • Family Caregivers: A new tax credit would be available for family caregivers

• Corporate Tax Reductions:

  • General Rate Reduction: Lower the corporate tax rate from 21% to 20%.

  • Incentives for Domestic Production: Reduce the corporate tax rate to 15% for companies manufacturing products within the U.S.

• Expand Child Tax Credit: Increase the child tax credit to $5,000 per child, with higher amounts for younger children, and make it fully refundable

How will these proposals affect Federal Revenue, the Budget Deficit, and the Economy?

In total, the new proposals would reduce Federal Revenue by $ 336 Billion.

Compare to Current Total Federal Revenue and Spending:

Total Federal Spend in 2024:                               $ 6.75 Trillion  (23% of GDP

Total Federal Revenue in 2024:                           $ 4.92 Trillion  (17% of GDP)

Budget Deficit in 2024:                                         $ 1.83 Trillion

On its face, the Tax Proposal would increase the Budget Deficit by  18%.

Now the question comes:  Will these proposals stimulate economic growth that creates Federal Revenue that more than offsets the initial investment of tax reduction.

Cogport presents its analysis with the view that National Policy should eliminate the Federal Deficit.  The Federal Government has become too large and consumes too much of the National Economy.  The current path of massive growth in National Debt is not sustainable - the debt of $ 36.2 Trillion now has an annual interest cost of $ 880 Billion.  Imagine what could be done with that amount of money.

The ultimate goal is to reduce Federal Presence in line with the vision of the Founding Fathers of a limited Federal Government.  They would be astounded by what has happened over the last hundred years.

How would the current Tax Proposal affect future growth and revenue:

GDP growth rate in 2024 was 2.8%

If GDP growth increases to 3.5%, Federal Revenue would increase by $ 215 Billion.

Net Result:

The Trump proposal leaves a net deficit in Revenue between Gains and losses.  Not helpful for the Deficit.

More reports to come on this subject.

David Hollaender                                  May 3, 2025

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