A week before America’s tax day, the Washington Free Beacon reported that the U.S. Treasury collected a “record-high” amount of taxes in nominal terms in the first half of fiscal year 2016. Cause to celebrate?
Not so fast. The U.S. federal government collects record taxes almost every year. That’s because the economy grows almost every year, as the population grows and innovation moves along, so the amount of taxes in nominal terms increases most years. In fact, in the 73 years between 1941 and 2014, federal tax revenue increased in 60 of those years and only decreased over the previous year 13 times, according to data from the Tax Policy Center.
But there is still reason to celebrate an increase in tax revenue because increases in tax revenue are tied to increases in GDP. If the GDP rises, then tax revenue usually increases. Tax revenue cannot increase without a greater base of economy production to draw from.
The few times that tax revenue decreased while GDP increased were mostly connected to tax cuts. President George W. Bush signed major tax cuts into law in 2001 and 2003, and tax revenue declined from the previous year every year from 2001 to 2003. Tax revenue in 2002 was $138 billion less than in 2001.
Despite the good news, conservatives greeted this level of tax revenue growth–which includes corporate taxes, payroll taxes, income taxes, and all other federal tax revenue–with concern.