December 3, 2012 by David K. Sutton
Tax Revenue, Post-WWII, Averages 17.7 Percent Of GDP
In the years since World War II (1946-2011), federal tax receipts have averaged 17.7% of Gross Domestic Product (GDP). This is probably the best way to gauge the federal tax burden because it compares it to economic output. Since there are many arguments in and out of Washington D.C. about the effects of taxation on economic growth, it makes sense to directly compare the measure of taxation (total federal tax receipts) with the measure of economic output (GDP).
In 2011, total federal tax receipts was 15.4% of GDP. This is almost 2 and 1/2 percentage points below the nearly 70 year average. There are two main reasons why federal tax receipts are lower than average. 1. The Great Recession still has unemployment running about 3 percentage points above normal, which means millions of Americans not paying federal income tax. 2. The Bush tax cuts along with 30 years of supply side tax policy has resulted in some of the lowest income tax rates on record.
With all the “fiscal cliff” talk in recent weeks, I would like to offer a simple suggestion. It’s a suggestion Republicans are sure to ignore in favor of their dogmatic views on taxation. — Let’s get tax revenue closer to the post-WWII average before we talk about reforming social insurance programs. There is absolutely no credible reason to cut Medicare, Medicaid and especially Social Security when the United States federal government is taking in less than the historical average in tax receipts. Get tax revenue up to the historical average, then, and only then, can we consider talking about cuts to social insurance programs. But even then, there are revenue fixes to these programs that need to be explored long before we put the burden on the poor and middle class.
During an economic recovery the last thing we should be talking about is major cuts to social programs. Austerity should be the furthest thing from our minds. Just ask Great Britain.