GOP Targets Taxes as Government Nears 20 Percent of Economy

The federal government is on track to collect more than $3.6 trillion in revenue for the current fiscal year, roughly 18.9 percent of of the nation’s $19.3 trillion economy.

And still, it will not be enough to keep the government in the black.

“Washington definitely has a spending problem, not a revenue problem.”

By fiscal year 2021, according to projections by the Office of Management and Budget, revenues will hit 20 percent of gross domestic product (GDP), a figure reached just once since World War II. The fact revenues are near historic highs is important to keep in mind as the debate over tax reform gets ready to kick off in earnest over the next few weeks, according to conservative budget experts.

“Washington definitely has a spending problem, not a revenue problem,” said Adam Michel, a policy analyst at the Heritage Foundation. “We’re spending our money on too many things.”

[lz_table title=”Tax Revenue as Share of GDP” source=”Office of Management and Budget”]Year,GDP,Receipts√
2012,$16T,15.3%
2013,$16.5T,16.8%
2014,$17.2T,17.6%
2015,$17.8T,18.3%
2016*,$18.5T,18..1%
2017*,$19.3T,18.9%
2018*,$20.1T,19.4%
2019*,$21T,19.5%
2020*,$21.9T,19.8%
2021*,$22.9T,20%
|
√ as a percentage of GDP
* Estimate
[/lz_table]

“This Week” host George Stephanopoulos on Sunday offered a preview of what will come when he grilled House Freedom Caucus Chairman Mark Meadows (R-N.C.) about whether Congress needs to cut a dollar of spending for every dollar of tax cuts.

“Does it have to be fully offset? My personal response is no,” Meadows said.

That prompted surprise from Stephanopoulos.

“Oh, well that seems like a bit of a shift,” he said.

Meadows argued lower taxes would stimulate economic growth, increasing wages and tax revenue. Stephanopoulos’ surprise notwithstanding, that has been standard Republican philosophy since the days of President Ronald Reagan. The GOP should not run away from it now, said Grover Norquist, president of Americans for Tax Reform.

“We had similar complaints when Reagan took the marginal tax rates down,” he told LifeZette.

Norquist said the economy averaged about 2 percent economic growth under former President Barack Obama. Boosting that to 3 percent would produce an additional $2.5 trillion over a decade, he said. He said a 4 percent growth rate, achieved in the Reagan and Clinton administrations, would mean $5 trillion.

“The way to raise revenue is economic growth,” he said. “The Ds have it all wrong. They want to keep spending money and have lousy economic growth. We tried that for eight years.”

A 2013 study by economists Karel Mertens and Morten Ravn found a 1 percentage point cut in the average personal income tax rate raises economic growth per capita by 1.4 percent in the first quarter and 1.8 percent after three-quarters. An equivalent cut in the corporate income tax rate raises GDP by .4 percent in the first quarter and .6 percent after a year.

Norquist argued that not all tax cuts are equal, though. He said President George W. Bush’s 2001 tax cut was mainly through tax credits, which have a limited impact on GDP. He urged Congress to pass “growth tax cuts” that would be longer-lasting.

Michel, of the Heritage Foundation, noted that federal revenues as a share of GDP have held fairly stable — within a few percentage points — for decades, despite changes in tax rates.

“The inability to sort of move beyond that … speaks to how difficult it is to squeeze more money out of the tax code by raising rates,” he said.

Michel said tackling deficits and the national debt over the long haul depends on spending reform. He said that means taking on the big-ticket items like Social Security and health care spending.

“There are definitely reforms that can be done in these areas where we can contain costs, and I think we need to look at these areas,” he said.

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Norquist said cutting taxes also could help reduce spending if it juices the economy and reduces government dependency.

“Growth, growth, growth is the way to reduce spending because you spend less on welfare,” he said.

Although some experts contend that tax reform is even harder than the health care overhaul that failed last week, Norquist argued that it is easier. The people hurt by the failure to repeal Obamacare are diffuse, he said. The people hurt by taxes, he added, are “well-known, and they know who they are. And they know who to be made at.”