Do Tax Cuts Really Pay for Themselves? Thoughts for the Day-September 25, 2026

We've been trying versions of the same idea for 45 years. What actually happened?

I’ve been thinking lately about something that isn’t exactly a new problem.

How do we pay for the government we want without continually borrowing more money?

With our national debt now around $40 trillion, that question seems more important than ever.

But rather than start with what Republicans say or what Democrats say, I decided to look backward and ask what actually happened.

That led me in two different—but closely connected—directions. And eventually to a third.

Today, in Part One, I’m looking at tax cuts.

For more than four decades, we’ve repeatedly heard that reducing taxes will encourage investment, stimulate the economy and produce additional tax revenue. There is evidence that some of that happens.

But I’ve always wondered about the next question:

Does the additional economic growth generate enough revenue to pay for the tax cuts?

We’ve tried versions of this idea under Ronald Reagan, George W. Bush, Donald Trump and, most recently, with the “Big Beautiful Bill” enacted in 2025.

So I decided to look at the results.

In Part Two, I’ll look at something almost completely different.

There actually was a period in recent American history when Washington stopped adding to the debt through its annual budget.

For four consecutive years—from 1998 through 2001—the federal government took in more money than it spent.

How did that happen?

And in Part Three, I’ll look at a question that emerged while researching the first two:

If Congress has reasonably good estimates of what legislation will cost before voting on it, why don’t we require ourselves to pay for it?

I think the three stories belong together.

I’m not expecting them to provide a magic formula for eliminating a $40 trillion national debt.

But perhaps looking at what we’ve actually tried—and what actually happened—is a better place to start than listening to another round of political promises.

Part One. Do Tax Cuts Pay for Themselves?

Something I read in The New York Times this week got me thinking about an economic idea we’ve been experimenting with for most of my adult life.

It received widespread attention when Ronald Reagan became president in 1981.

The idea was relatively simple.

Cut taxes.

Leave more money with individuals and businesses.

They’ll spend and invest more. Businesses will expand. More people will work. The economy will grow.

And as the economy grows, the government will collect some of the lost tax revenue back.

It sounds reasonable.

And here’s something important I found as I started looking into it:

Part of it works.

Tax policy affects behavior. Lower tax rates can encourage work, saving and investment.

But there’s another part of the argument that interests me much more.

Does the additional economic growth generate enough additional tax revenue to pay for the tax cuts?

We’ve now had more than four decades to find out.

The Idea Sounds Pretty Good

When Reagan took office, America had serious economic problems.

Inflation was high. Interest rates were high. The economy was struggling.

Reagan argued that high tax rates discouraged work, investment and entrepreneurship.

Lower the rates, the argument went, and people would have greater incentives to work, save and invest.

That’s what became known as supply-side economics—or, more popularly, Reaganomics.

The economy eventually grew strongly during the Reagan years.

But here’s the distinction that sometimes gets lost: Helping the economy grow and paying for a tax cut aren’t the same thing.

The government still has bills to pay

If we collect less money in taxes, something eventually must happen.

We spend less.

We borrow more.

Or economic growth generates enough additional tax revenue to make up for what we gave up.

That third possibility is the one I wanted to understand.

So What Happened?

The Reagan tax cuts were followed by substantial economic growth, particularly after the severe recession of the early 1980s.

Federal income-tax revenue initially declined relative to the size of the economy. The economic pie got bigger. But the government’s share of that pie got smaller.

The growth didn’t simply replace all the revenue that had been given up.

In 2001 and 2003 we tried substantial tax reductions again under President George W. Bush.

The economy grew during much of that period too. But once again, the tax reductions didn’t pay for themselves.

That doesn’t mean tax cuts caused all the deficits that followed. Far from it.

We fought wars. Federal spending increased. Eventually we experienced the worst financial crisis since the Great Depression.

There’s plenty of responsibility to go around. But the pattern was becoming interesting.

Then We Tried It Again

In 2017, Congress enacted another major tax reduction.

This one is particularly useful because the Congressional Budget Office tried to calculate both sides of the equation.

The CBO concluded that the tax law did increase economic activity. That’s important. Part of the theory worked.

The stronger economy generated additional tax revenue.

But CBO estimated that after accounting for the additional cost of servicing the debt, the stronger economy offset only about 20 percent of the projected increase in deficits.

Think about that. We got additional growth. We got additional tax revenue.

We just didn’t get enough to pay the bill.

Now We’re Trying It Again

That brings me to the tax and spending legislation enacted in 2025, commonly called the One Big Beautiful Bill.

Once again, taxes were reduced substantially.

And once again, supporters argued that lower taxes would help stimulate economic growth.

The CBO projects additional economic activity from the law. But it also projects substantially more borrowing.

Its current estimate is that, after including both economic effects and additional interest costs, the legislation will add about $4.2 trillion to federal deficits through 2034.

And that’s where this stopped being simply an economic question for me.

This legislation didn’t just reduce taxes. It also reduced spending on programs that millions of Americans depend upon.

Who Gets the Benefit—and Who Pays?

Two of the programs affected are Medicaid and SNAP, the food-assistance program.

Supporters of the changes make arguments that deserve to be heard.

They say work requirements encourage employment. They say government assistance should be directed toward people who genuinely need it. They say waste and improper payments should be reduced.

Those are legitimate issues to debate.

But I wanted to know something else.

Who receives the benefits from the tax and spending changes—and who is most affected by the reductions in government assistance?

What I found bothered me

The CBO estimates that the 2025 law reduces resources toward the bottom while increasing them in the middle and toward the top; its average figures are about -$1,214 annually for the lowest decile and +$13,622 for the highest. CBO attributes much of the loss at the bottom to Medicaid and SNAP reductions.

The direction is difficult for me to ignore

I have no objection to successful people being successful.

I’ve been fortunate in my own life. I don’t believe people should be penalized simply because they’ve worked hard, invested wisely or done well financially.

But I have difficulty understanding the wisdom of substantially reducing taxes when many of the benefits flow toward people who are already doing well, while simultaneously reducing food and health-care assistance relied upon by people who have considerably less.

Especially when we’re still borrowing trillions of dollars.

If we were making those sacrifices to solve our national debt problem, I could at least understand the argument.

But we’re not.

We’re reducing assistance for some people who have the fewest resources. We’re providing significant tax benefits to people with considerably more.

And we’re still adding trillions of dollars to the debt.

That is the part I have trouble reconciling.

The $40 Trillion Question

I don’t blame our enormous national debt on Ronald Reagan, the Bushes, or Trump

And I certainly don’t blame it exclusively on Republicans or Democrats.

We’ve all had a hand in it.

We’ve cut taxes. We’ve increased spending. We’ve fought wars. We’ve responded to recessions and a pandemic.

Social Security and Medicare costs have increased as our population has aged.

And increasingly, we’re spending enormous amounts simply paying interest on money we’ve already borrowed.

But after more than four decades of trying versions of the same tax-cut strategy, I think we’re entitled to ask: Did it work the way we were told it would?

The answer seems more complicated than either side would probably like.

Tax cuts can help stimulate economic activity.

Economic growth can return some of the lost revenue.

But the evidence I’ve looked at doesn’t support the idea that large tax cuts routinely generate enough additional revenue to pay for themselves.

Maybe the Question Is Simpler Than We Make It

I’m not arguing that taxes should always be higher.

I’m not arguing that every government program should be protected.

And I’m certainly not arguing that successful people should be punished for being successful.

I’m asking something much simpler.

If we cut taxes, shouldn’t we be honest about what happens next?

If economic growth replaces the lost revenue, it will be wonderful. But if it doesn’t, there are only a few choices.

We cut spending. We borrow the difference. Or, we do both.

And when we cut spending, we should also be honest about who is affected.

For 45 years, we’ve heard some version of the argument that economic growth will help make up for the cost of tax cuts. Growth does help. It just doesn’t make the bill disappear.

With roughly $40 trillion already on the national credit card, “eventually the growth will pay for it” is becoming a very expensive promise.

Coming Tomorrow: We Actually Did It Once

Looking at 45 years of tax cuts left me with another question.

Has Washington ever successfully done this differently?

Surprisingly, yes.

For four consecutive years beginning in 1998, the federal government actually collected more money than it spent.

Tomorrow I’ll look at how that happened—and whether there’s anything we can learn from it today.

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Quote of the Day: “A budget tells us what we can’t afford, but it doesn’t keep us from buying it.”

— William Feather

Sometimes an old observation sounds remarkably current.

Orchid of the Day: Today’s Orchid goes to any elected official—Republican, Democrat or independent—who is willing to tell voters that we cannot indefinitely have everything we want from government without paying for it.

That’s probably not a great campaign slogan.

But it might be a pretty good way to govern.

Onion of the Day: The idea that there is always an easy way out of difficult financial choices.

Cut taxes and growth will solve it.

Increase spending and somebody else will pay for it.

Borrow the money and worry about it later.

Eventually, later arrives.

Question of the Day: If balancing the federal budget required some combination of higher taxes and lower government spending, would you personally be willing to accept some of each?

And if so, what tax benefit or government program affecting you would you be willing to give up?

That’s where this conversation gets a lot harder.

Lyrics of the Day: “And the taxman’s taken all my dough.”

What song is it—and who recorded it? If you know the answer, please provide your response in the comments section below.

Answer to Lyrics of the Day September 23: “I will be watching you” by Police

Video of the Day: Justin Verlander’s Retirement Speech | Detroit Tigers JV Career Celebration