It’s the Spending, Stupid

December 19th, 2012 by Leave a Comment

It’s very unfortunate to see all of the time being wasted in Washington on tax rates when the real problem is federal spending.

This chart shows that despite top tax rates ranging from 28% to as high as 94%, federal revenue as a percentage of GDP has remained amazingly consistent around the long-term average of 18.5%.  (Of course, most economists would argue that the economy grows faster when marginal tax rates are lower.) Even if President Obama gets his way and raises marginal tax rates, revenues over time will still average 18.5% of GDP. However, the chart here highlights the real problem: federal spending as a percentage of GDP is projected to skyrocket to well above 35% of GDP. Why are we spending so much time debating tax rates?

 

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