NCPA - National Center for Policy Analysis

Definition Of Federal Revenues Complicates Tax Cuts

February 2, 1998

House Ways & Means Committee Chairman Bill Archer has proposed limiting federal revenue to 19 percent of gross domestic product (GDP). With revenues currently at 19.9 percent, this would require a tax cut of more than $70 billion this year alone.

Archer's proposal is a good one, but will be difficult to implement. For one thing, it is not at all clear what federal revenues actually are.

  • The Office of Management and Budget (OMB) says that in fiscal year 1997 the federal government collected $1,579 billion.
  • But according to the Department of Commerce, the federal government collected $1,692 billion in fiscal year 1997, $113 billion more than OMB calculated (see figure).

The biggest differences have to do with the treatment of nontax government receipts:

  • For instance, Commerce counts Medicare Part B premiums as revenues, while OMB treats them as "offsetting receipts" or negative spending.
  • The impact on the deficit is the same, but Commerce shows the government with higher receipts while OMB shows it with lower spending.
  • Another important difference is in their treatment of taxes the government pays to itself, such as the employer's share of Social Security taxes on federal employees, which OMB does not count at all, while Commerce does.

Of course, there is also a problem in calculating GDP. The data are frequently revised, sometimes significantly, which can either raise or lower receipts as a share of GDP even when they are known with accuracy. Thus the simple notion of limiting revenues as a share of GDP is not as simple as it sounds.

Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), February 2, 1998.

 

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