Will the Dems Raise Taxes?

Posted by: Michael Mandel on November 13

Probably not, if this chart is any guide.

taxshares_29021_image001.gif

The thin blue line tracks federal revenues as a share of GDP (through the second quarter of 2006). The purple horizontal line is the average revenue share since 1960.

Generally speaking, we are more likely to get tax cuts when the revenue share is well above the long-term average, and tax increases when the revenue share is below the long term average of 18.4%. So the tax revenue share had peaks in 1981 (19.8%) and 2000 (20.9%), right around the time of the 1981 Reagan cut and the 2001 Bush cut. And the tax revenue share bottomed in 1992 (18.1%), right before the Clinton tax increase. (all these numbers are based on BEA data).

I think of this in political terms. When Americans are paying a lot of money in taxes, they are more receptive to a tax cut. And if they are paying relatively less money, they are less opposed to a tax increase.

Of course, this link does not explain the second Bush tax cut, in 2003, when the revenue share of 17.2% was already well below the long-term average.

But still, with the federal revenue share at 19.4% according to the BEA, that’s well above the long-term average. And that suggests that Democrats will find a fair bit of “push-back” if they try to raise taxes.

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Reader Comments

theCoach

November 15, 2006 01:03 PM

Do you have any interest in extending that graph back to, say, 1900?

Tim

November 15, 2006 02:50 PM

Interesting, but shouldn't the point be concerning the trend line rather than an average over 45 years? While the 40 year figure is flat, the long term trend line (by eyeballs only) looks to be something around 19%, with the tax burden rising .5% for each ten years.

Mike Mandel

November 20, 2006 08:54 AM

The trend line looks like it is tilted up because I included the 1960s. If you start with the 1970s, it's pretty much flat.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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