The Washington Post’s Glenn Kessler offers a highly misleading account of the 2001 and 2003 tax cuts, saying they were “passed for the wrong reasons” and implying that, since there was no real need to cut taxes then, there’s no real problem with raising them now. (Kessler makes his claim in the context of admitting that an analogy used by Paul Ryan is “technically accurate,” although Kessler opines that he finds the analogy “misleading.”)
According to White House historical tables (Table 1.3), wherever you start the clock — at the end of World War II, in 1970, or in 1990 — revenues through 2008 averaged 18 percent of the gross domestic product (GDP). That’s the percentage of the economy that Americans have historically paid in taxes (at least in the postwar period; it was only 7 percent in 1940). It’s also the same percentage (18 percent) that they would pay in taxes over the 10-year span of the Ryan-authored House budget.
The highest percentage of the economy that Americans have ever paid in taxes was 20.9 percent of GDP — in 1944, at the height of World War II. By 2000, shortly before the 2001 and 2003 tax cuts, tax revenues had almost reached that mark: They were 20.6 percent of GDP, eclipsing the previous runner-up year of 1945. So, by 2000, the federal government was taxing Americans more than during most of WWII, even as a percentage of the economy.
After the 2001 and 2003 tax cuts, revenues reverted to historical norms, averaging 18 percent of GDP from 2005 through 2008. Revenues have since plummeted because of the terrible economy — you can’t generate much income-tax revenue when people don’t make much income — which should have provided a meaningful lesson for Washington’s big spenders.
Meanwhile, President Obama’s 10-year budget calls for spending 24 percent of GDP in year-1, 24 percent in year-10, and an average of 24 percent across the 10-year span. You can’t balance the budget with 24 percent spending unless you raise taxes to 24 percent of GDP — fully one-third higher than our postwar average and a whopping 3 percentage points higher than Americans paid even at the height of World War II.
It’s been said many times before, but it bears repeating: We don’t have a tax problem, we — and particularly Obama — have a spending problem.