Traveling

I’ll be traveling for the next few days, so posting might be light. In the meantime, I offer this for your consideration. It’s a graph of Federal Revenue by year, on a deflated and per capita basis. To derive this, I took annual Tax Revenue (all sources) for 1980-2000, converted to constant 1996 dollars using the GDP deflator rather than the CPI, and then divided the constant dollar numbers by the U.S. population in each year. This should represent federal revenue over time, after controlling for inflation and population growth.

A few observations leap out: (1) Revenue declined after the 1981 tax cut. (2) Revenue did start increasing after 1983 (reflecting two things: first, some taxes were raised in 1983 and after; second, 1983 was when the first year shown in the graph without a recession. (3) After Clinton raised taxes, in 1993, federal revenue took off. This partly reflects the boom, but that didn’t really get into full swing until 1996.

So, on balance, it looks like when you raise federal tax rates, federal tax revenue goes up (at least for rates under 50%), and vice-versa. Stunning. (click to enlarge)

AB