It’s a big cut – but not that big
The Tax Cuts and Jobs Act that Republicans hope to pass and have signed into law by the end of the year has been billed by President Donald Trump as "the biggest cuts ever in the history of this country" and attacked by critics as "deficit-exploding." Technically, though, it's not even the biggest tax cut of the past five years.
That honor goes to the American Taxpayer Relief Act of 2012, which was actually signed into law by President Barack Obama on Jan. 2, 2013. It's something of a bogus distinction, given that the act mainly just extended provisions of 2001, 2003 and 2009 tax cuts that were due to expire. That is, it was not so much a tax cut as a prevention of planned tax increases. The same goes to some extent for the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.
But even with those set aside, the Tax Cuts and Jobs Act still pales in comparison with President Ronald Reagan's 1981 tax cuts and the 1964 cuts generally identified with President John Kennedy, and it is a bit smaller than, if you add them together, President George W. Bush's tax cuts of 2001 and 2003.
The revenue estimates for past tax bills are from Jerry Tempalski of the Treasury Department's Office of Tax Analysis, who last updated them in February 2013. They do not attempt to incorporate any economic effects of the tax cuts or tax increases; they're just measures of how big the enacted cuts or increases were. The estimates are also available in current dollars and constant 2012 dollars, but percentage of gross domestic product seemed the best way to compare over time. I only included tax legislation with a revenue impact of 0.5 percent of GDP or more, which is why the landmark Tax Reform Act of 1986, which increased taxes by just 0.01 percent of GDP over four years, doesn't show up. For the current tax bills, I used the Joint Committee on Taxation's revenue estimates (again, not incorporating any projected economic effects) and the Congressional Budget Office's most recent GDP forecasts.
I used 1952 as the cutoff date because most years from 1940 (the first year for which Tempalski's report has data) to 1951 featured a major tax hike or tax cut, and including all of them in the table would have been excessive.
Man, Congress really knew how to raise and cut taxes in those days! It was mostly increases, of course, but even the tax cuts of 1945 and 1948 still leave this year's legislation in the shade. So, again, it's definitely not the biggest tax cut ever. Not even close.
As for "deficit-exploding," well, I guess it depends on what you mean by "exploding." The deficit for the fiscal year that ended Sept. 30 was about 3.5 percent of GDP. If you assume no positive (or negative) economic effects from the tax cuts, they would thus cause the deficit to rise to about 4.4 percent of GDP. In sum, this is major tax legislation that is likely to have a major effect on tax revenue and possibly on the economy as whole. It does not, however, appear to be historic or unheard-of or unprecedented or any of those things.
How big the tax legislation's positive economic impacts might be has, of course, been the topic of much debate over the past few months, with tax-cut boosters in Congress and the administration claiming that they'll be so massive as to make the legislation revenue-neutral or even revenue-positive. That's highly unlikely. The most favorable serious economic analyses of the legislation so far, from the business-friendly Tax Foundation, estimate that the House version would reduce revenue by $1.08 trillion over the next decade and the Senate version by $516 billion.
The Tax Foundation has run this same economic model on several past tax bills, which makes for some interesting comparisons. The current legislation would increase long-run GDP by 3.7 percent (Senate version) or 3.5 percent (House version), according to the model. That compares with an estimated 8 percent GDP gain from the 1981 tax cut, and 6.2 percent from the 1964 tax cut and a 1962 precursor. The 2001 and 2003 tax cuts each increased long-term GDP by an estimated 2.3 percent, while the 1993 tax increase reduced it by 1.5 percent.
Again, this is what the model says, not what actually happened, and other organizations have other models in which the current tax legislation doesn't look like nearly the growth booster that the Tax Foundation's model says it will be. As the late statistician George Box used to say, "All models are wrong but some are useful."