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The Bush Tax Cuts: How have they affected tax revenue?

The Bush tax cuts contributed, along with underlying economic conditions, to a historic decline in federal tax revenue. In 2000 total federal tax revenue was as high in proportion to the U.S. economy as it had ever been. By 2004 federal tax revenue in proportion to the economy had fallen to its lowest level in almost fifty years.

  • In recent decades the federal tax take has generally fluctuated between 17 and 19 percent of gross domestic product (GDP). By 2000, however, total federal tax receipts had reached 20.9 percent of GDP, their highest level since 1970 and matched only in 1944, when the federal government collected 20.9 percent of GDP in taxes at the height of fighting World War II. By 2004, however, federal tax receipts had fallen to 16.3 percent of GDP, which is not only the lowest level since 1970, but the lowest since 1959.
  • Most of the decline in the ratio of federal tax revenue to GDP can be traced to the individual income tax. From 1970 to 2000 these taxes were typically in the range of 8 to 9 percent of GDP. In 2000 individual income taxes were 10.3 percent of GDP, their highest level ever. By 2004 individual income taxes had dropped to 7.0 percent of GDP, their lowest level since 1951. Total federal tax revenue declined by 4.6 percent of GDP from 2000 to 2004; of that total, 3.3 percentage points, or almost three-quarters, was due to the decline in individual income tax revenue.
  • Most of the remaining decline in the revenue-to-GDP ratio resulted from a drop in the share in total revenue coming from corporate income taxes, which fell by 0.5 percent of GDP from 2000 to 2004, and a drop in the share coming from the payroll taxes that finance Social Security and Medicare, which declined by 0.4 percent of GDP over that period.
 
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