Surplus surprise: Trump’s quick turnaround in budgeting

Except for four years in the late 1990s, the Federal Government has had a deficit in its budget every year since 1962. Prior to Donald Trump becoming president again last January, the budget deficit for 2025 was projected to be $1.8 trillion. But last month, there was a budget surplus. Is this a one-time happening, or could we see more surpluses in the future?

Except for the month of April, when income tax revenues increase because Americans are completing their 1040s and paying their taxes, budget surpluses are rare. They usually occur because of some timing anomaly. June 2025 may be different.

Nearly every elected official will admit that the federal government can’t continue to spend more than it collects in revenue. The annual budget deficits have resulted in a public debt exceeding $36 trillion. The interest expense on that debt is approaching $1 trillion annually.

We all agree this is not sustainable.

Some progressives argue that we could reduce the annual deficit by raising taxes on the highest income earners. They want higher annual tax rates on income and higher tax rates on capital gains. Both of those will lead to slower economic growth and lower, not higher, tax revenue.

The example I always cite is President Clinton in 1996. With a sluggish economy, Clinton decided to lower the capital gains tax rate from 28% to 20%. That resulted in increased tax revenue and, more importantly, led to 4% annual growth in GDP for the following four years.

Some Progressives argue that the income tax rate on the wealthy was 70% in the 1950s, and the economy grew at a pace that mostly balanced the annual budget. The economy was, however, much different from what it is today.

In the 1950s, we had a labor-intensive economy, meaning products were made and services provided by workers, with little input from capital. Assembly lines had hundreds of workers. As such, the economy didn’t need large input from capital. New Capital is generated mostly by high-income earners.

Today, we have a capital-intensive economy, meaning fewer workers produce more output because of the technology used in the production process. Today, we need to create as much new capital as possible, so those high tax rates will stifle economic growth.

Raising taxes today on any income group will result in less capital formation and much slower economic growth. The bottom line is that higher tax rates will reduce, not increase, tax revenue.

The real cause of the annual budget deficits and the huge, unsustainable public debt is the vast increase in government spending. In 2019, the government spent $4.5. In 2025, they will spend $7.3. Spending must be cut.

And while nearly every official says they agree with that, it is nearly impossible to reduce spending. That’s simply because every elected official says they want spending cuts, but just don’t cut in any areas that affect my constituents.

The Trump Administration is having a very difficult time trying to get Congress to approve budget cuts. However, last month, Trump’s government spent less than $500 billion. In June 2024, the federal government spent $537 billion. While one month is not a trend, the reduction in spending is very encouraging.

At the same time, the government collected over $526 billion in revenue. That compares to June 2024, when $466 billion was collected in tax revenue. Higher tax revenue and lower government spending turned a monthly deficit into a monthly surplus.

Trump has been in office for less than six months. In that very short time, he has successfully tackled and is beginning to solve a potentially existential threat in an extremely hostile political environment. Because of his policies, we are likely to continue to see more spending reductions and more tax revenue.

Recall the Big Beautiful Bill cut tax rates. That means Trump generated more revenue by keeping Americans’ income tax rates low. The increased tax revenue came mostly from tariff revenue created by his “it’s time to be fair” tariff policy.

The public debt has created a huge hole. The first thing to do if someone is stuck in a deep hole is to stop digging. President Trump is poised to stop that digging and turn the tide.

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