Roberton Williams has a terrific post at TaxVox that’s worth reading in full. The gist of his argument is that historical revenues as a percent of GDP are, contra Paul Ryan, not a normative benchmark for the government going forward.
It is true, as Ryan’s plan noted, that that level of revenues matches the historical average for recent years. Over the past half century, the share of GDP claimed by federal taxes has ebbed and flowed, ranging from a high of 20.6 percent in 2000 to a low of 14.9 percent each of the last two years. The 50-year average was just a hair under 18 percent (see graph). But nothing says this should be the correct level of taxation going forward. [Emphasis added]
Absolutely right. The population is getting older. We’re no longer fighting the Cold War. The nature of the American economy has shifted dramatically in the last twenty years, to say nothing of the last fifty.
I’d also add this: If you look over the last fifty years – and there’s nothing that makes 50 years the “right” scope (why not 25? Why not 200?) – the weighted average of revenues-to-GDP is 17.8%. The corresponding spending-to-GDP figure over that period is 20.7%. In words, the historical average over the past 50 years has been a deficit of about 3% of GDP. There’s a lot of math involved, but the bottom line you would find is that the nation’s overall debt-to-GDP ratio stays roughly constant when you run deficits of 3% of GDP (remember that the economy grows too, so you can run small deficits and still maintain or even decrease the debt-to-GDP ratio). But if we want to decrease the debt burden, we’ll need to get to deficits below 3% of GDP. Simply reverting to average historical revenues and spending would thus be insufficient to reduce America’s debt burden. And of course, historical averages tell you nothing objective about the cause of the problem. Conservatives like to tout the historical comparison as evidence that we have a “spending” problem, but you could make just as convincing a case that the problem is insufficient revenues (up to today, that is; going forward, there’s far more consensus that the problem is one of runaway health care spending). Really, these statistics are just an inkblot test for one’s prior assumptions.