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We Don’t Have a Revenue Problem

We have a spending problem and a growth problem — in that order.

10:03 AM, May 23, 2011 • By JEFFREY H. ANDERSON
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On Meet the Press, Rep. Chris Van Hollen, the ranking Democrat on the House Budget Committee, said that “political courage on the Republican side means taking on the revenue piece” of the deficit equation.  In other words, it requires Republicans to support raising taxes.  Time’s Mike Murphy and NBC’s Andrea Mitchell agreed. But these assertions belie the facts.

Chris Van Hollen

Chris Van Hollen

According to White House figures (Table 1.3), whether you start the clock at the end of World War II, in 1970, or in 1990, the average percentage of the gross domestic product (GDP) that Americans have paid in federal taxes is 18 percent.  What about in the wake of the 2001 and 2003 tax cuts? From 2001, the year in which some of those tax cuts first went into effect, through 2007, the last fiscal year before the start of the recession, the average percentage of GDP that Americans paid in federal taxes was also 18 percent.   

Leading up to the recession, in fiscal year 2006, Americans paid 18 percent of GDP in federal taxes. In fiscal year 2007, Americans paid 18.5 percent of GDP in federal taxes. Even in fiscal year 2008, during which time the recession began, Americans paid 17.5 percent of GDP in federal taxes. So revenues in the wake of the 2001 and 2003 tax cuts matched historical norms. 

Then the recession and the anemic recovery to follow really began to take their toll. In 2009, Americans paid just 15 percent of GDP in federal taxes. Meanwhile, the federal government spent 25 percent of GDP, the highest tally since World War II.  In 2010, Americans paid just 15 percent of GDP in federal taxes, while the federal government spent 24 percent of GDP. This year, Americans will pay an estimated 14 percent of GDP in federal taxes, while the federal government will spend an estimated 25 percent of GDP. Again, all of this is according to White House figures.

It could hardly be clearer that this decline in federal revenues has resulted not from a cut in tax rates but rather from a marked decline in economic growth. The recession and the subsequent lackluster recovery have had the effect of lowering Americans’ taxes. Thus, every time Democrats say that we currently have a revenue problem, they are inadvertently highlighting that we currently have a growth problem. They are highlighting that the Obama administration’s policies have failed to spur growth or produce prosperity. 

Of course, as these numbers indicate, we also have a spending problem — a huge one. But we don’t have a tax problem. Well, actually, we do: Our high tax rates, particularly our indefensibly high (35 percent) corporate tax rate — the highest in the industrialized world — stifle our economic growth. 

It would be refreshing to hear Democratic leaders such as Van Hollen admit that our recent deficits, matched previous only during the Civil War, World War I, and World War II, are a product of paltry growth and excessive spending. More specifically, it would be refreshing to hear them admit that this is the worst economic recovery since the Great Depression, and the most profligate administration ever. Now that would show true political courage.

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