Higher Revenues Are Essential to Reducing the Deficit

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Though conservatives like to point to the “historical average” level of tax revenue as support for their position that further deficit reduction should not include more revenue, the historical data actually prove just the opposite. If we want to reduce our budget deficit, we will need higher revenues than are currently projected.

As Congress and the White House contemplate possible approaches to deficit reduction that would replace the $1.2 trillion sequester that is set to begin in March, the arguments over revenue and spending levels have intensified. Most conservatives in Congress insist that any plan to replace the sequester must be paid for entirely by cutting spending—not by bringing in new revenue. Their position rests on the contention that, “This isn’t a tax problem. It is a spending problem.” And as proof, they often point out that revenues are already projected to rise above the historical average over the next 10 years.

They’re not wrong—at least not about the historical average. Federal receipts, as a percentage of gross domestic product, or GDP, have averaged 17.9 percent over the last 40 years. The Congressional Budget Office projects that—with the fiscal cliff deal in place and assuming that a variety of “temporary” tax breaks will be extended yet again—federal revenues will average 18.5 percent of GDP over the next 10 years. 18.5 percent is certainly bigger than 17.9 percent, so some conservatives say that this proves that we don’t need more revenue.

But what they’re missing is that 17.9 percent of GDP hasn’t been enough revenue for the last 40 years—and it certainly won’t be enough for the next 40 years.

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