New projections by the Congressional Budget Office (CBO) has prompted Republicans to say that revenue is not the problem, spending is. The $2.7 trillion record tax-intake for 2013 is nominal only, however, and below the long term average relative to GDP.
“Spending is the problem, which means cutting spending is the solution. It’s that simple,” said Rep. Cathy McMorris Rodgers of Washington State, March 2, according to CS Monitor. She based her argument on the projections by the CBO that tax revenues will hit a record in the fiscal year of 2013.
Things are not that simple, however, as the absolute dollar number of tax receipts masks underlying economic trends.
The prior peak of $2.6 trillion was hit in 2007, just before the onset of the Great Recession, writes CS Monitor. If one factors in a two percent inflation rate, this would be worth $2.93 trillion today much more than the $2.7 trillion projected intake.
Also, relative to GDP, the share of tax revenues is only 16.9 percent, lower than the 18 percent average of the last 40 years. So what is the solution to the ongoing deficits (the CBO projects $845 billion or 5.3 percent of GDP for 2013)?
“Putting the debt on a sustainable path will ultimately require increases in taxes or cuts in government benefits or services for people who consider themselves to be in the middle class,” Douglas Elmendorf, the CBO director, told private sector economists in a speech March 4, according to CS Monitor.
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