tax rev, deficits, and the budget: a historical comparison

http://www.economist.com/debate/freeexchange/2007/02/funny_about_that_budget.cfm

[rquoter]Liberal policy blogger Matthew Yglesias makes fun of the Heritage Foundation and Andrew Sullivan:

[rquoter] Andrew Sullivan and the Heritage Foundation identify "ten myths" about the Bush tax cuts, including the particularly insidious myth that revenue reductions mean that "Tax revenues remain low." On the contrary! As Heritage points out, "Tax revenues are above the historical average, even after the tax cuts."

I wonder, did they calculate the average dating back to independence in 1776 or only back to the constitution taking effect in 1789?

In related developments, a twelve inch black and white television has better picture quality than a player piano and our troops in Iraq are only insufficiently equipped if you forget that the historical average indicates that soldiers typically rely on horse-drawn transportation. [/rquoter]

His incredulity is not surprising, but it is wrong. The historical average for tax revenues as a percentage of GDP for the last 45 years—roughly, the span of the modern taxation era—is 18.2%; in 2006, the government collected 18.4% of GDP as tax revenues. Even if you throw out the Bush budgets of 2002-2006, the average rises only a tenth of a percent, meaning that America is still above its historical average. The same holds true for budget deficits. The historical average is 1.6% with the Bush years, 1.5% without, making last year's 1.8% budget deficit look less than outlandishly out of line.

The interesting thing is that no one knows these happy facts. Democrats are still harping on budget deficits as if (a cynic would say "because") they were a gigantic mess, rather than a shrinking problem. This is not an excuse for running deficits, of course; there is no reason that a prosperous nation should be borrowing money to run its government when the economy is booming. But America's budget deficit is small enough that it is now unlikely to be having any sort of measurable effect on the economy, and inflation and economic growth will quickly erode the value of recently accumulated debt. Mr Bush may leave a large number of problematic legacies for future generations, but the revenue shortfalls of recent years will not be noticed among them. [/rquoter]