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Revenue/GDP Ratio, 1981-2011
July 19, 2011
Revenues from taxes are at their lowest level in years: around 16% of GDP. This means that the U.S. government has been unable to collect anywhere near the traditional high rate of around 19%.
The reason why the deficit is so large is that the government is spending far more than it collects in taxes. It has hit a revenue ceiling.
Some people call for higher taxes. But will this change the ratio? If higher taxes cause an economic slowdown, revenues will not rise, due to the slowdown.
Some people think the economy will grow its way out of this. Given the level of the annual deficits, this is impossible. Economic growth is slowing. Unemployment is rising.
Others call for major spending cuts. This will not happen until 2013, if then.