National Taxation

Many people in the United States think we are overtaxed.  By pretty much any measure we aren't.  In 2015 our tax as a percent of GDP was 26% well below the average of 34% for other developed countries.

Tax by Country

I'm sure taxes are complained about everywhere, and there is no political capital to be gained by proposing to raise them, however, if growth and reduced spending aren't going to eliminate the deficit, the only thing left to do is to raise taxes.

However, besides the political consequences there will also be economic ones.  The Government doesn't collect taxes or borrow money to sit on it, it is used for many purposes all of which, except interest on the national debt, end up increasing our GDP.

Whether the money is used to pay for a fighter plane, a federal salary, a social security check or food stamps it enters the economy and circulates.

Since the deficit is so high, we are borrowing over a trillion dollars in 2018 which is stimulating the economy.

Its not much different with people who take out loans or credit card debt to buy things today with the promise of paying the loan back in the future.

So were we to stop borrowing for current costs and instead increase taxes, we would see that amount disappear from the economy, not because of the taxes, that money would be spent, but because we wouldn't have that loan stimulus every year.

I want to make sure it is clear that eliminating the deficit would not eliminate the National Debt.  It would take many years of surplus income to do that.

The increase would be in the order of an extra 25% based on 2019 projections where revenue is projected at $3.42 trillion while expenses are estimated at $4.41 trillion.  No one is proposing raising taxes that much, in fact, you see very little action related to this issue.

In the best case scenario we see spending go down and tax receipts go up because of economic growth.  In a much more troubling scenario we see spending go up and revenue go down because of a recession.

If nothing is done about the debt, at some point we won't be able to borrow enough to fund it and that will lead to any of a number of bad scenarios, such as runaway inflation, widespread unemployment, recession, devaluation of the American dollar.

None of it is good.