Higher Taxes Are Not the Key to a Balanced Budget

by: Mark J. Perry
Scott Grannis has a great post about the pro-cyclical pattern of federal tax revenues, illustrating graphically above the huge increase in tax revenues recently due to the economic rebound. Historically, tax revenues as a share of GDP have been fairly constant, despite large variations in the top marginal tax rate, see the chart below.


This analysis leads Scott to conclude that:

There is every reason to think that federal (and state and local) revenues will continue to grow at a relatively high rate as long as the economy continues to recover. Balancing the budget doesn't require higher tax rates, it just requires spending restraint and pro-growth policies. Holding spending constant, and assuming revenues grow at their current rate, the federal budget would be balanced in 5-6 years. If the new Congress can't make a significant move in this direction (i.e., holding the line on spending and keeping tax rates as low as possible), they deserve to be trounced in the next election.