Opinion Editorial

Monday, June 16, 1997 

Tax-Cut Critics Ignore Growth

Predictably, the usual supporters of big government were quick to criticize the tax cut put forward by House Ways & Means Committee Chairman Bill Archer (R-TX) last week. House Minority Leader Dick Gephardt (D-MO), the Washington Post and the New York Times all attacked it as a giveaway to the rich. The Center on Budget and Policy Priorities (CBPP) called it a budget-buster that would slash federal revenues by as much as $750 billion between the years 2007 and 2017.

What these critics all fail to see, however, is the big picture. The fact is that federal receipts today are at their highest level in the history of the United States, and they have been for more than a year (see figure).

  • When President Clinton took office, federal revenues consumed 19 percent of gross domestic product -- not far above the postwar average until that time of 18.5 percent.

  • But since then, revenues have risen steadily, and by the second quarter of last year they broke the previous record, reaching 20.9 percent of GDP.

  • In the fourth quarter of 1996 and the first quarter of 1997, revenues hit another all-time high of 21 percent of GDP.

Prior to the Clinton Administration, the highest percentage of GDP ever achieved was 20.7 percent, in the first part of 1969 and again in early 1981. Never, even at the height of World War II or the Korean War, has the federal government taken such a large chunk out of the economy. We would need a tax cut of $160 billion this year alone and more every subsequent year just to get federal taxes back down to where they were when Clinton took office. That is 22 times more than taxpayers will get next year under Archer's tax cut, which only reduces taxes $85 billion over five years.

As to the tax cut benefiting the rich, it is almost impossible for it not to. That is because the poor don't pay any taxes. According to the Treasury Department, a family of four with an income of up to $20,000 already pays nothing in federal income taxes. And according to the IRS, the top 50 percent of taxpayers pay over 95 percent of all federal income taxes. But to liberals, all taxpayers are "rich."

Finally, it is ludicrous to forecast the size of a tax cut in the year 2017. The Congressional Budget Office has great difficulty accurately forecasting revenues even one year out. And remember that GDP likely will be $20 trillion in 2017 -- three times larger than today -- using the CBPP's own methodology. A $750 billion tax cut between 2007 and 2017 comes to less than 0.5 percent of GDP over that period.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, June 16, 1997.

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