Closing the budget deficit: Corporate taxes, IRS enforcement and more

The U.S. government overspent by $1.9 trillion for fiscal year 2026, representing nearly 6% of gross domestic product, according to the Congressional Budget Office.

That budget shortfall means the Treasury Department will continue to issue more debt to cover the difference between spending and revenue. Public debt will exceed GDP this year and could reach 120% of GDP by 2036, according to CBO projections.

We recently convened a webinar with Econofact, a publication from Tufts University, to explore policies that can shrink the budget gap. To inform reporters’ coverage, below we walk through several policies the panelists discussed. The panelists were:

• William Gale, the Arjay and Frances Miller Chair in Federal Economic Policy in the Economic Studies program at the Brookings Institution.

• Elena Spatoulas Patel, co-director of the Urban-Brookings Tax Policy Center, the Pozen Director’s Chair, and a senior fellow in the Economic Studies Program at the Brookings Institution.

• Kyle Pomerleau, a senior fellow at the American Enterprise Institute, where he studies federal tax policy.

• John Sabelhaus, a senior fellow at the Urban-Brookings Tax Policy Center and adjunct research professor at the University of Michigan.

• Daniel Shaviro, the Wayne Perry Professor of Taxation at New York University Law.

Keep reading to understand some of the major revenue-generating policies that reporters often encounter when covering the deficit, and watch the full hour below.

Tariffs

Tariffs are taxes on imported goods or services.

The presidential administration of Donald Trump has imposed a variety of tariffs on imports from certain countries as well as across the board tariffs on certain goods, as shown in The Atlantic Council’s Trump Tariff Tracker.

Tariffs amount to about a 4% increase in yearly revenue for the government, Pomerleau said. The Supreme Court in February struck down the legal authorization the Trump administration had used until then to impose tariffs — the International Emergency Economic Powers Act. The tariffs didn’t end, though the Treasury Department has refunded more than $140 billion in tariffs collected this year.

“We are roughly back to where we were prior to the Supreme Court decision,” Pomerleau said. “The Trump administration has utilized other authorities to replace much of that revenue, and so right now we are experiencing roughly a 10% effective tariff rate — meaning that if you look across all imports, on average, goods imports are facing an effective tax rate of 10%.”

But there’s a limit to how much revenue can be raised through tariffs. That’s because tariffs lead to higher prices. If prices rise too much, people stop buying those goods.

To raise significant revenue — enough to replace the income tax — would require tariffs of about 220% on everything coming into the U.S., Pomerleau said. Tariffs that high would raise prices so much that imports would fall by about 95% “so you’d really actually raise nothing at all,” he added.  

Corporate taxes

Federal legislation in 2017 lowered the corporate tax rate from 35% to 21%. Today, corporate income taxes make up about 9% of federal revenue, down from 20%-25% during the 1950s and 1960s, according to the Center on Budget and Policy Priorities.

While the corporate tax rate is important for business reporters to know, there are two other figures that tell a more complete story, according to Patel.

The first is corporate tax revenues as a share of gross domestic product, which has fallen from 61% in 1951 to 14% last year. The second is corporate profits as a share of GDP, which has risen steadily from a low of about 4% in 1986 to 13% today.

“It’s the disconnect that’s part of the question that I think we should be talking about, which is why are corporate receipts as a share of GDP — or how much corporations are paying in tax — disconnected from the fact that they seem to be becoming more and more profitable every year,” Patel said.

Estate taxes

Through “loopholes and aggressive avoidance techniques,” Gale said, the share of people with estate tax liabilities at death has fallen from 1 in 16 during the 1970s to less than 1 in 1,000 today.

This is the inheritance and estate tax situation as more than $80 trillion is expected to pass from older to younger generations in the coming decades.

“Right at the time when wealth transfers are increasing, our ability to capture revenue from them has almost completely disappeared,” Gale said. “That’s important, not only for revenue purposes and the whole fiscal outlook and balancing the budget, it’s also important for the distribution of wealth — the distribution of opportunity — what kind of society we would like to live in.”

IRS enforcement

Research suggests that increasing IRS funding leads to more revenue — more staff and more enforcement means more tax collected — but by how much depends on the study.

In 2021 the Congressional Budget Office estimated that increasing IRS funding by $80 billion would bring $200 billion in revenue, or $2.50 in revenue for every dollar spent.

The Budget Lab at Yale University in 2025 estimated that $80 billion more in IRS funding would net $637 billion, or about $8 in revenue for every dollar spent.

“If you want lower [tax] rates, a well-enforced tax system will generate more revenue and allow you to lower rates and raise the same amount of revenue as before,” Gale said. “If you want more government spending, a well-enforced tax system will bring in revenues that can help fund the government and fix the fiscal problem. So there ought to be universal agreement that we need a tax system that works.”

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Source: The Journalist’s Resource