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December 09, 2005

Falling Income Tax Revenue (as a Share of GDP)

Kash Mansouri has a graph:


Angry Bear: The Budget Deficit in Context: Even I, someone extremely familiar with the details of the US's budget problems, was slightly astonished by this picture.... The truly remarkable thing about the graph is just how far [non-Social Security] federal revenues have fallen over the past fifty years. It appears that successive tax cuts, especially those by Reagan and Bush, have driven down federal revenues in a permanent way. Equally important, it is clear that those tax cuts have NOT driven down federal spending; the only substantial decline in federal spending happened during the 1990s, following a major tax increase in 1993. Yet more evidence that the "starve the beast" theory has the empirical validity of the Ptolomaic solar system.

[Non-Social Security] revenues have trended strongly down over the past fifty years, while spending has remained roughly constant (with the exception of the Clinton-era downsizing of the federal government). That, in a nutshell, is the reason for the US's present and future deep structural budget deficit.

Note: The projection for the rest of the decade is from the CBO. This CBO forecast assumes that Bush's tax cuts are made permanent, that AMT is mostly fixed, that spending in Iraq and Afghanistan tapers off gradually over the next decade, and that non-defense non-homeland security (NDNHS) discretionary spending is sharply curtailed. Unlike the referenced CBO document, however, I do not assume that Bush's social security privatization scheme is enacted into law.

And let me rise to the defense of Claudius Ptolemy: his theory works for predicting the motions of the planets. The "starve the beast" theory does not work. Please Don't slander Claudius Ptolemy.

Posted by DeLong at December 9, 2005 10:12 AM