This is a terrible analysis on many different levels, but the some of the worst offenses are:
- there is no information given about the source of the data or what constant dollars it is denominated
- it doesn’t define tax revenue, so we don’t know if we are getting a like comparison across nations
- it’s largely a point of time analysis. That the cutoff year is 2020 is significant
Word of caution: when you find these types of red flags, it’s worth asking more questions and looking at the takeaways with a lot of skepticism.
Fortunately for you, I’m a skeptic and have some feee time this Friday, so I’ll do some of your work for you. I couldn’t find the source of these numbers nor could I match them with any government data I could find. That’s not to say they aren’t real, but I cannot know what is defined as revenue, is it in constant dollars, are gdp and revenue comparable in terms of the absolute dollars.
I gave up trying, but I did go to the Fred who tracks this exact statistic: Federal Receipts as Percent of GDP.
You can find that here:
Federal Receipts as Percent of Gross Domestic Product
A few things to think about:
- The 40 year average is 17.1%
- median of 17.1…so we’re not working with a skewed set of data
- 50% of the data points in that time range fall between 16.5% and 17.7%
- The 10 years leading up to 2017 (2008 to 2017) the average was 16.2, weighed down some due to recession
- From 2018 - 2021, the average is 16.6%
- with 2021 coming in at 17.6%
As with anything like this, you can choose to conclude what you wish to conclude. Here is how I would objectively interpret this information:
1 - yes, lowering tax rates temporarily suppressed collections versus gdp. This would be expected, because the tax rate change is immediately while the output change is delayed
2 - There was a significant improvement in 2021, shooting up to 17.6%, a 340 bp improvement versus 2017. One might lazily and opportunistically claim it’s the tax cuts…I would want to better understand why this happened and see if this trend continues.
3 - the average of the years since the tax cuts, we are still clearly in the middle 50% of the last 40 years. No point in moving the tax rates higher.
