NCPA - National Center for Policy Analysis

Taxes Reached Historical High in 2000

January 28, 2002

A major theme of President Bush's State of the Union Address tomorrow will undoubtedly be a defense of his tax cut. A new report from the Congressional Budget Office explains why the tax cut was needed and why it must be preserved.

Taxes as a share of the gross domestic product (GDP) were at a postwar high when the tax cut was enacted last year, and would have continued to rise without legislative action. Moreover, even with the cut, taxes remain well above their historical average as a share of GDP. In short, there is simply no evidence whatsoever that the tax cut deprived the federal government of the resources it needs.

  • The CBO report shows that individual income taxes consumed 10.2 percent of GDP in 2000.
  • This percentage increased steadily throughout the Clinton Administration, rising from 7.8 percent in 1992 to 8.5 percent in 1996 and 9.6 percent in 1999.
  • By the time Bill Clinton left office, income tax revenues were almost 2 percentage points of GDP above their long-term average of 8.3 percent.

According to the CBO, had there been no tax cut last year, income taxes would have remained above 10 percent of GDP indefinitely, and would have continued to climb to 10.5 percent by 2011.

Even with the tax cut, income taxes will remain well above 9 percent of GDP for the entire forecast period -- considerably higher than their historical average.

There is a major tax increase already programmed into current law. Because of idiotic Senate budget rules, the tax cut is, in fact, repealed in 2011. As a consequence, income taxes will jump from 9.4 percent of GDP in 2010 to 10.2 percent in 2011 and 10.6 percent in 2012, according to the CBO.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 28, 2002.

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