Tax Burden Stifles Economic Growth

New NCPA Study examines the effect of an excessive tax burden on economic growth. The estimate the optimal level of federal, state, and local taxes should be about 23% of GDP (about what it was in 1950) rather than the 30-34% it has been in recent years. They find that had we kept taxes and spending at that level, US GDP (and personal income) would be about 3 times higher than it currently is.

They also estimate the effect of returning to the optimal rate of taxes in future years:

• By 2010, projected GDP at a growth rate of 5.8 percent would amount to $14.6 trillion, compared to about $13.1 trillion at a 3.5 percent growth rate.
• By 2020, projected GDP at the higher growth rate would be $25.7 trillion, compared to only $18.5 trillion at the lower growth rate.
• By 2030, GDP would be $45 trillion, almost twice as much as the $26 trillion resulting from the 3.5 percent growth rate.

Deficit hawks and pro-government spending folks, note this:

• In 2020, tax revenues at the lower average tax rate would be about $6 trillion, compared to $5.5 trillion at the higher average tax rate.
• By 2030, this difference would increase to $10.5 trillion for the lower average tax rate, compared to $7.8 trillion at the higher rate.
• Total tax revenues from 2005 to 2030 would be $148.2 trillion at the lower average tax rate, compared to only $136.9 trillion at the higher average tax rate, a difference of more than $11 trillion!