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Growth Fact #2 of 10: Tax Revenue Gains Without Higher Taxes
The editors of the 4% Growth Project asked Bush Growth Fellow Ike Brannon to look into 10 things that would happen if the U.S. economy grew at 4% each year in real terms for 10 years. We will unveil one growth fact each week. To read all previous growth facts, click here. Growth Fact #2 of 10: If the economy grew at 4% per year, the government would collect more than $3 trillion in additional revenue over the coming decade,[i] matching the revenue that the Administration proposes to generate by raising income tax rates on the highest earners and allowing some business tax cuts to expire.
[i] In just three years of 4% annual growth, with no new taxes, the economy would generate 7.3% more than CBO’s current projections. In fact, a one-year, temporary increase in economic growth of one percentage point (to a 4% annual rate from the forecasted 3%) in 2012 alone would ultimately produce over $400 billion in additional revenue, approximately equal to the revenue that the Office of Management and Budget estimates would result from allowing the Bush income tax rate reductions to expire for small businesses and individuals in the top two tax rates. Furthermore, this projection of increased revenue understates potential tax revenue, because we know that sustained economic growth can produce progressively larger increases in tax revenue that invariably exceed the forecasts by CBO and OMB. For example, tax revenue grew 50% from 1996 to 2000 (a period with average annual GDP growth over 4%) and 44% from 2004 to 2007 (when GDP growth exceeded 3% annually), neither of which were predicted by CBO or OMB. See “Fiscal Year 2012 Analytical Perspectives, Budget of the United States Government,” Office of Management and Budget, Table 3-1. Note that the revenue gains rise substantially over the decade from the additional growth, so we cannot say $300 billion per year but $300 billion on average. The table is available at: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdf. Look at Table 3.1, page 24, column 3. Two things to note: First, we are limiting our discussion of tax rate increases solely to the top 5% of earners (which is in the Administration’s proposed budget), but we are ignoring additional tax increases proposed on the top 5% of earners via the phase out of various deductions they have available. Second, to get the three years, we actually start with 2014 and not 2013. If there were a temporary increase in growth to 4% for just one year, it would create a higher base for future growth and thus impact revenue in subsequent years. The gains in 2013 from that one-year increase would be $292 billion, but it would have an increasing impact on revenue in future years. “Historical Budget Tables,” Congressional Budget Office, 2011.
TARIFF-IED: Trade Talk with Matthew Rooney
This week, trade relations between the U.S. and India are continuing to escalate. Earlier this month, the U.S. stopped granting India special trade privileges by taking away the Generalized System of Preferences (GSP) program, and India has responded by enforcing more tariffs of its own. The George W. Bush-SMU Economic Growth Initiative Director Matthew Rooney breaks down the trade conflict: For more information on trade groups and the global economy, visit www.bushcenter.org/scorecard.
How Trade Spreads Holiday Cheer
It is projected that the average American household will spend more than $1,000 during the holidays this year.
Deporting Salvadorans May Lead to Economic Decline
We should think carefully about a policy whose major impacts are likely to be reductions in employment and economic activity here at home, and increased instability and lawlessness along our borders.
Bush Institute's Laura Collins Talks Immigration on Good Morning Texas
Last week, Deputy Director of Economic Growth at the George. W. Bush Institute Laura Collins spoke with Good Morning Texas about immigration myths. During the interview, Collins had the opportunity to set the record straight and address common misconceptions about legal immigrants living in America today. The segment was inspired from facts released earlier this fall by the Bush Institute in the third edition of America's Advantage: A Handbook on Immigration and Economic Growth. Watch the full Good Morning Texas interview here.