Thursday, January 28, 2016
Alan Reynolds (Cato Institute), Tax Rates, Tax Reform and Tax Revenues: Part One:
As the graph shows, the U.S. has had considerable experience with top tax rates as high as 91-92%, as low as 28%, and everything in between. The individual income tax averaged 7.7% of GDP since 1946.
Republican Tax Reform plans are being judged against last August’s Congressional Budget Office (CBO) “baseline projection” for revenue. Failure to hit those baseline numbers has been described as “losing trillions” over a decade. But baseline revenue projections are not forecasts, as the CBO warns, and they totally unrealistic.
First of all, baseline projections are required to assume that dozens of supposedly temporary tax breaks (like the 30% tax credit for solar and wind investments) magically sunset on schedule and disappear, even though they are routinely “extended” by Congress at the end of each year. ...
The second problem is that even though individual tax revenues have rarely touched 9% of GDP, CBO baseline projections assume revenues from individual income taxes supposedly rise from 8.1% of GDP in 2014 to 9% in 2017, 9.2% in 2020, 9.6% in 2026 and so on – reaching 13.3% of GDP by 2090. ...