How much of the GDP will be taxes is the real budget debate

I’m listening to Congress debate Cut, Cap and Balance on C-Span web and yes, it’s self-inflicted torture. Each side claims solidarity with the American people, most of whom curl their lips in distaste when Congress is mentioned. We have a huge debt, but Punt, Pass and Kick (I mean Cut, Cap and Balance) or The Gang of 6 plan, or the McConnell plan¬† are screens that obscure the main question, which is: How much of the GDP will we allow to be tax revenues?

My pardon to Republicans, but we are paying too little in taxes at this time, primarily because the Bush tax cuts were extended. We cannot sustain that low level of taxation, which is less than 15 percent of GDP. On average, the past 66 years, taxes have been 18.5 percent of the GDP.

Fact: We cannot sustain entitlements at that level. The real debate is over how high we will move taxes as a rate of the GDP. The highest level it has ever been is 1944, when it was 20.9 percent and we were fighting a war.

Last year’s debt commission recommended that taxes make up 21 percent of the GDP. It’s interesting that President Obama rejected that all-time high number. I suspect he rejects it because he, the president and Democrats, understand that the tax percentage of the GDP will have to be quite a bit higher to sustain even smaller-than-expected growths in Medicare and Social Security, and the Obama health care bill.¬†Example: The Center for American Progress, which is a think tank closely adhered to by the White House, wants taxes to 23.8 percent of the GDP. (Read)

Republicans of course want the opposite, preferring to keep taxes low and cut non-discretionary spending as much as they can while tinkering with the big entitlements and doing away with the health care law.

Both of these “solutions” come with uncertainty. The Democrats’ plans could move tax revenues to a heighth that stalls the economy. Republicans who want low tax rates to continue have to understand that our entitlements can’t be sustained on a wing and a tax prayer. In any event, the percentage of taxes that makes up the GDP is the most important budget debate.

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10 Responses to How much of the GDP will be taxes is the real budget debate

  1. Owain says:

    “Fact: We cannot sustain entitlements at that level.”

    Correct. Maybe the right question to ask is, “Should we sustain entitlements at their current level?”

    I think the position among most conservatives is, “We are not under taxed. We are overspent.”

    The biggest reason we are bumping up against the debt ceiling is the binge spending indulged in during the first three years of the obama administration. Roll back that spending, and much of current debt crisis would evaporate. Reform entitlements and all of the debt crisis would evaporate.

    I read somewhere that given the current state of entitlements, we could tax everyone in the country making more than $250,000 per year at the 100% rate, and it still wouldn’t cover the shortfall in social security, medicare, and the interest required to service our current debt over the long run.


    If that’s true (I’ll try to verify my recollection), again, we are not under taxed. We are overspent.

  2. Midwinter says:

    Who are you and what have you done with Doug Gibson?

  3. Steve Stones says:

    I want to know why it was okay for George Bush to raise the debt ceiling at least two times with 120 members of Congress who are still in office, but when a black, liberal President suggests this may be an option, now it is a bad thing? Remember: President Reagan raised taxes 11 times in his two terms. Why is raising taxes on the wealthy such a bad idea now? Furthermore, why was it okay for our government to bail out the banks and auto industry in 2008, but it’s a bad idea to bail ourselves out by raising the debt ceiling, or putting entitlements on the table and raising taxes?

  4. Owain says:

    Steve – don’t be such a racist. It has nothing to do with Bush being white and Obama being black.

    Look at the graph at the top of the page in this link:

    When Bush was President, he had a $200 Billion surplus in 2000 and deficits running between $200 Billion and $475 Billion for the next 7 years. Deficit spending under Obama was $1.4 Trillion in 2009, $1.3 Trillion in 2010, and is projected to be $1.7 Trillion for 2011. That’s more than TRIPLE what Pres. Bush’s WORST deficit was each and EVERY year Obama has been in office so far.

    Look at the graph! It has nothing to do with race, and everything to do with Obama’s out of control spending, so knock that race shit off, will ya please?

  5. Mark says:

    Clinton was president in 2000. Bush wasn’t sworn in until 2001.

    We do need to cut costs. Our medical costs per capita are twice most other rich countries with inferior results. We need to confront the greed in insurance and drug companies. We are involved in three wars and our military spending is greater than the rest of the world combined. We can’t sustain this forever.

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