Washington Examiner Editorial:
There is simply is no way around it: Your taxes are going up on New Year’s Day. Whether you are a wealthy individual who is about to be hit by President Obama’s tax hike on the rich, or one of the millions of working Americans whose payroll taxes will rise, you are about to see government take more from your paycheck. The only question is how much more it will take.
Tax revenue as a percentage of gross domestic product is currently at historic lows. In 2011, the federal government ate up 15.4 percent of the U.S. economy in taxes. That was up from 15.1 percent in both 2010 and 2009, which were post-1950 lows. The reason is that we’re in the weakest economic recovery since World War II. As the economy improves, tax collections will grow, but history indicates there is an upper limit as to how high they will get.
Liberal columnists love to point out that the top marginal rate on personal income was 91 percent in the 1950s and in the early 1960s. But the tax code back then was also chock-full of loopholes and benefits that let top earners escape such stifling tax burdens. As high as top marginal rates were, taxes as a percentage of GDP never rose above 19 percent, and in fact fell as low as 14.5 percent.
In fact, since World War II, federal taxes as a percentage of GDP have never risen above 20.6 percent and have averaged just under 18 percent. This has been consistent, regardless of changes to tax rates.
Spending has always been the main driver of U.S. budget deficits. It has fluctuated far more than taxes, falling as low as 14.2 percent of GDP under President Truman and rising as high as 25.2 percent under Obama.
Unfortunately, Obama’s “balanced” approach to reducing the debt ignores these facts and attempts to raise taxes far above historical norms.
No matter how high the top personal or corporate tax rates have been, federal taxes as a percentage of GDP have been above 20 percent for only three years in all of U.S. history: 1994, 1945 and 2000.