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!