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By Charles Pope October 5, 2012

Are tax revenues the lowest they've been since World War II?

Rep. Kurt Schrader, D-Ore., bills himself as a budget hawk, a persistent agitator for getting the nation’s debt under control. He also speaks frequently about the broken federal tax code.

Those two concepts came together on Sept. 13 when Schrader wrote in an e-newsletter that Congress should go "big" this winter when devising a way to avoid the so-called "fiscal cliff," the spending cuts and tax increases that go into effect automatically early next year if Congress does nothing.

Schrader has been preaching this for months. But in the newsletter he offered a new argument for re-working the tax code as part of the exercise. One big reason comprehensive tax reform is needed, he wrote is, "Tax revenues are the lowest they have been since World War II and need to increase through comprehensive tax reform."

That’s quite an interesting and emphatic statement; exactly the kind that gets our attention at PolitiFact Oregon.

The first part is especially worth a look - "Tax revenues are the lowest they have been since World War II" -  because that claim and some variation of it will be heard often when Congress begins debating tax reform later this year.

But what does he mean?

To the average person, revenue usually means dollars. If that’s the case, Schrader could not be more wrong. How wrong? Try this. In 1945, federal revenue was $45.1 billion, according to the Office of Management and Budget. By 2010 OMB records show that number had exploded to $2.2 trillion because the nation’s economy grew at a record pace.

But wait. Schrader’s spokesman, Cody Tucker, says that’s not the comparison the congressman is making. Tucker said the statement is based on calculations of revenue as a percentage of gross domestic product (GDP). Schrader’s claim compares revenues from federal income taxes, Social Security and assorted excise taxes, Tucker said, and uses the 2010 fiscal year as an endpoint because that’s the last year for actual data.

None of that is spelled out - or even hinted - in the newsletter.

Linking revenue to gross domestic product, which is the total value of all goods and services the country produces, is a standard and accepted way of comparing economic variables over time. It’s a common tool used by economists and budget wonks on Capitol Hill so one year can be accurately compared to other years.

PolitiFact Oregon has no fear of wonky data. And we’re in luck here because this kind of baseline data is what economists are born to collect and collate, analyze and evaluate. Interest groups specializing in federal budget, including the conservative Heritage Foundation and non-partisan Tax Policy Center do it. Non-partisan outfits including the Congressional Budget Office do it.

So does OMB, which provides a handy year-by-year summary of federal revenue as a percentage of GDP going back to 1930. In that year, the percentage was 4.2 percent.

Schrader says in his comment that revenue is the lowest since the end of World War II. That would be 1945. And sure enough, the percentage that year had jumped to 20.4 percent, reflecting the cost of the war and the nation’s singular focus on winning no matter the cost.

In 1950, federal receipts as a percentage of GDP amounted to 14.4 percent. During the subsequent six decades, the share typically hovered between 16 percent and 20 percent. By fiscal year 2010, it was 14.9 percent of GDP.

All of those years are higher - or equal - to 2010.

Schrader is correct on 2010 compared to 1945. And he’s correct about the years in between.

But the reader shouldn’t have to call his office or OMB or some economist for an explanation.

He doesn’t specify that he’s referring to revenue as a percentage of GDP. He’s not explicit about when the period starts (1945?) and when it ends (2010?). That’s important because OMB projections say revenue will jump to 16.6 percent of GDP in 2012 and 17.9 percent in 2013. Both of those are higher and thus dent Schrader’s argument.

He also fails to point out another important caveat - that absolute levels of federal tax revenues collected in many of the most recent years have been at or near record levels even though the percentage remains low. That’s because the overall economy has grown, too.

All of this muddles the message and leaves out important context. And to find the real result Schrader asks readers to do far too much work. For that reason, we rate this claim: Half True.

Our Sources

Rep. Kurt Schrader E-Newsletter, Sept. 13.

PolitiFact, June 28, 2011; "Jim DeMint says federal government has more revenue coming in "than we ever have"

Congressional Budget Office, Dec. 2, 2010; "Trends In Federal Tax Revenues and Rates"

Oct. 1, 2012, phone interview with Cody Tucker, spokesman for Rep. Kurt Schrader

Tax Policy Center, April 2012; "Historical Federal Receipt and Outlay Summary"
Office of Management and Budget, "Historical Tables"

Heritage Foundation, 2012;"Tax Revenues Return to Historical Average"

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