(Bloomberg News) Congress will return from its spring recess next week to debate just how large a tax burden Americans can and should shoulder, an issue at the core of the discussion about reducing the U.S. budget deficit.
Many Republicans, determined to prevent tax increases, say federal revenues shouldn't exceed 18 or 19% of gross domestic product, the nation's total output. Senate Republicans have offered a constitutional amendment that would cap the federal take below 17% of GDP. President Barack Obama, meanwhile, has proposed a budget that would push revenue to 20% of GDP by the end of the decade and announced a proposal April 13 that would raise that number even higher.
In an economy projected to reach about $24 trillion by the end of the decade, each percentage point represents $240 billion. That means Obama and some Republicans in Congress are more than $700 billion a year apart. The gap represents divergent visions of the size, scope and role of government.
"I think the center of this country is that they don't want any tax increases," Representative Tom Price of Georgia, chairman of the House Republican Policy Committee, told reporters April 12. "They recognize that the government spends too much and it is time to get government spending under control."
The debate over the size of the federal tax burden comes as it stands at a 60-year low of 14.8% of GDP, because of the recent recession and tax cuts. The economic recovery will push that ratio up, even if Congress does nothing, as incomes and profits increase over the next few years. Just how high it will go and should go is the issue being discussed.
Congressional Republicans emphasize that the revenue-to-GDP ratio is an attempt to focus the debate on taxes rather than on the fate of popular programs under a hard cap on the size of government, said Leonard Burman, a professor of public affairs at Syracuse University in Syracuse, New York.
"It does hide how difficult the budget challenge is," he said. "If you're talking about keeping revenues at 18 or 19% of GDP, you're talking about enormous cuts in public services for years to come."
Since World War II, the federal tax take has averaged between 18 and 19% of GDP, and that has become the upper limit that Republicans such as Representative Paul Ryan, chairman of the House Budget Committee, do not want to breach. A constitutional amendment to balance the budget backed by Utah Senator Mike Lee, a Republican, pegs the 18% target to the prior year's economy, setting an effective cap of 16.7%.
The reluctance of these Republicans to raise taxes separates them from Obama, two bipartisan panels and a bipartisan group of six senators, who maintain that tax increases should be part of a deficit reduction package.