The conventional political wisdom is that Republicans have lost the argument on taxes. Obama won. Democrats held on in Congress. That means, according to some, that they have a mandate to raise taxes. Because, according to them, a big part of the nation’s deficit problem is lower tax revenues resulting from Bush-era tax cuts.
Unfortunately, this argument doesn’t match up with reality. This chart shows total direct federal revenues, by year, from 1992 through 2012 in nominal dollars:
There is a dip in revenues in 2001 and 2002 corresponding with the post-9/11 recession. Then there is a return to revenue growth even after the implementation of the Bush tax cuts beginning in 2003. That continues until 2008 and 2009 when the collapse of the housing market thrust the nation into a nasty and protracted recession.
But even since then, federal revenues have been growing, increasing roughly 19% over 2009 levels and nearly reaching our 2008 peak.
Yes, tax revenues took a nose dive in the early years of President Obama’s term, but that wasn’t the result of tax cuts. That was the result of the collapse of the subprime mortgage market and the domino effect it had on the economy. And the massive deficits which have accumulated under President Obama are the result of our political leaders refusing to slow spending even as tax revenues dropped. Under Obama, total federal spending has increased 27%:
To be fair, the deficits that accumulated under President Bush (second only to Obama in terms of spending growth) were the same cause. Bush and the Republican Congress he enjoyed for most of his term refused to keep sending in line with revenues. Spending growth outpaced even the rapid growth in total federal revenues we saw after the Bush tax cuts.
The common denominator here, whether we’re talking about Bush-era deficits or Obama-era deficits, is spending.
We don’t have a taxation problem. We have a spending problem.