Magazine article Government Finance Review

Trends in Federal Revenues

Magazine article Government Finance Review

Trends in Federal Revenues

Article excerpt

The federal revenue share of gross domestic product (GDP), as shown in Exhibit 1, reached its peak in 1969, when the Congress enacted an income tax surcharge during the Vietnam War, and again in 1981 after several years of rapid inflation pushed taxpayers' incomes into higher tax brackets. Large personal and corporate tax reductions enacted in the Economic Recovery Tax Act of 1981, combined with back-to-back recessions in 1980 and 1981-1982, brought the revenue share down to well under 18 percent in 1983 and 1984. In subsequent years, the revenue share rose above 18 percent before falling below that level as a result of the 1990-1991 recession and the slow recovery that followed, which more than offset the tax increases enacted in the Omnibus Budget Reconciliation Act of 1990. The revenue share rebounded in 1994 as the economy improved and the tax increases enacted in the Omnibus Budget Reconciliation Act of 1993 took effect.

Important shifts have occurred over the last 35 years in the composition of revenues. Individual income taxes - the largest component of total revenues - have fluctuated between about 7 percent and 9 [degrees] percent of GDP since 1960 (see Exhibit 2). At 8.2 percent of GDP in 1995, the individual income tax share is currently just about equal to its average level for the 1960-1995 period. The individual income tax share of GDP rose sharply in the 1979-1982 period when rapid inflation led to bracket creep that pushed up revenues, peaking at 9. …

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