The two policies that national Democrats blame for massively
unbalanced federal budgets—the Bush tax cuts and the wars in Iraq and
Afghanistan—have been largely repealed. Yet deficits are projected to
average $700 billion a year over the next decade before rising again to
So as the Senate and House take up
competing budgets this week, President Obama and his congressional
allies have renewed their demands for more revenue. The claim is that
taxes remain far below historical norms, despite the recent rise in tax
Well, yes, federal revenues have
averaged only 15.3% of GDP over the past four years, the lowest share in
60 years. But that did not happen because tax rates are too low.
Federal revenues are down because economic growth is too slow.
This simple distinction is profoundly
important. Even small economic changes are powerful enough to dwarf the
tax-policy differences dividing Republicans and Democrats. ...
A more progressive tax code now leverages the negative impact of slow
economic growth. The share of all individual income taxes paid by the
top 1% has risen to 41.8% in 2008 from 17.4% in 1980—but almost
two-thirds of the income from the top 1% comes from nonwage income,
including capital gains, dividends and proprietor's profits. ...
The country's fiscal condition thus poses a choice for Democrats. They
can harvest a great deal of revenue by making peace with a profitable
and growing economy and with those productive individuals who create
such an economy. Or they can embrace new taxes on both upper- and
middle-income earners that will restrain economic growth. The latter
course will make it harder and harder to raise the revenue that
Democrats demand to fund the government they love.