The Taxonomist

Federal personal-income-tax revenues jumped by 11 percent in fiscal 2000, adjusted for inflation. That capped the strongest five-year real growth in personal income taxes that the United States has experienced since the 1960s. In fact, at 10 percent of the gross domestic product (GDP), personal-income-tax receipts are now at their highest level in American history.



Though other federal revenue sources (except real estate taxes) have grown at only average rates, personal income taxes are such a large portion of federal revenues that the inflation-adjusted increase in total federal receipts over the past five years also reflects the highest five-year growth rate since the 1960s.



Not surprisingly, many Republican lawmakers see this data and respond that the country needs a big cut in income taxes. Then again, they say that in response to just about everything. But with income taxes at an all time high, isn't the case for reducing them stronger than usual?



I wouldn't say so. The salutary effects of the nation's record-breaking income-tax receipts are obvious. For one thing, higher income taxes played a central role in eliminating the federal budget deficit. The $290-billion deficit of 1992 became a $237-billion surplus in fiscal year 2000 because revenues grew from 17.4 percent of the GDP to 20.5 percent, while outlays fell from 22.1 percent of the GDP to only 18.1 percent (mostly because of lower spending on defense and on interest).



The trends of recent years have also made federal taxes more progressive. Just as Ronald Reagan's tax cuts for the wealthy made the tax rate more regressive and sent the national debt soaring, Bill Clinton's tax hikes on the wealthy helped bring the debt back down. And in combination with the lower-income tax cuts Clinton signed in 1993 and the tax breaks enacted in 1997 for middle-income families with children, these higher taxes on the rich restored some progressivity to the system. (Of course, this still leaves federal taxes less progressive than they were before Reagan took office.)



Finally, the economy has been humming along nicely since the Clinton administration repudiated the borrow-and-spend, succor-the-rich policies of the 1980s. That's the other major contributor to our record-breaking revenue: More people are working and, therefore, more people are paying taxes. We ought to be reluctant about undoing the progressive tax policies that have helped the country achieve such good fortune.



Yes, the Congressional Budget Office (CBO) is preparing to boost its economic growth projections, thereby appearing to increase the non-Social-Security surplus by a half-trillion or so over the upcoming decade. But future surpluses will still depend mainly on keeping taxes at about their current level as a share of the economy. The big cuts in programs that the CBO had previously hypothesized are not likely to occur.



In fact, although Congress has yet (as I write in late November) to complete its work on the fiscal 2001 budget, it seems clear that next year's appropriations will be well above the levels contemplated in the CBO's previous surplus projections. This means that outlays in later years will almost certainly exceed the dubious old predictions, too. So if we want to have funds available to pay down the national debt or enhance public services in the future, we will have to maintain income-tax revenues. To do otherwise would mean deciding that tax cuts targeted to the wealthy have a better claim on our resources than do any of our real needs.

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