No Tax Increase Needed

By Richard W. Rahn
Cato Institute

Over the past 40 years, do you think the federal government has become relatively larger or smaller in relation to the size of the economy?

Please take a look at the table below and perhaps, surprisingly, you will see that the federal government, in terms of taxes and spending as a share of total gross domestic product (GDP), has remained almost constant for decades, even though it has grown steadily in absolute terms. (State and local governments, however, have been growing as a share of GDP, and burdensome regulations have been growing at all levels of government.)

Even though income tax rates by the end of the Reagan administration (1988) were less than half the rates of 1968, tax revenue as a percentage of GDP was actually a bit higher. Budget deficits have averaged about 3 percent of GDP for the last 40 years, and the government debt as a percentage of GDP (approximately 37 percent) is close to its historical average for the last half-century. As the numbers show, those who say disaster is upon us and we must increase taxes are just plain wrong!