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There’s no need to raise taxes as part of reducing the nation’s deficit, says House Majority Whip Kevin McCarthy.
Broad, blunt spending cuts known as the sequester go into effect March 1 unless Congress steps in. Democrats would prefer to reduce the deficit partly by raising taxes.
But the California Republican argued on Fox News that any solution should cut spending only — there’s plenty of revenue, he said.
"There's more money going in than any other time," he told host Greta Van Susteren on Feb. 25, 2013. "In the last four decades, on average, we brought in 17.9 percent of GDP. Now we're going to bring in 19.1."
Is the federal government collecting more than it ever has — more than it has on average the last 40 years?
Here’s what we found.
‘The last four decades’
McCarthy talked about "percent of GDP," a common tool of economists evaluating the impact of tax policies over time. They prefer to compare tax revenues as a percentage of the overall U.S. economy, the gross domestic product.
It’s fairly easy to see why — using raw numbers wouldn’t account for inflation or changes in population, for example.
Was McCarthy correct that the federal government used to collect, on average, 17.9 percent of the gross domestic product, and that the number will rise to 19.1 percent?
McCarthy’s office pointed us to reports from the nonpartisan Congressional Budget Office.
A recent CBO analysis says that, indeed, federal revenue is projected to rise with changes in the law, such as the recent end to Bush tax cuts on households making more than $450,000 a year.
"Revenues are projected to grow from 15.8 percent of GDP in 2012 to 19.1 percent of GDP in 2015 — compared with an average of 17.9 percent of GDP over the past 40 years," CBO’s analysts conclude.
So McCarthy accurately cites a reputable source when he says the federal government has collected an average of 17.9 percent of the nation’s gross domestic product over four decades, and now is "going to bring in 19.1."
(We should mention that even with higher revenue, CBO projects that deficits will increase "because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt.")
But what about McCarthy’s claim that "there's more money going in than any other time"? That’s messier.
So, remember how percentage of GDP is a useful tool for comparing revenue over time?
The government will pull in 16.9 percent in 2013, lower than the average over the last 40 years, according to the Congressional Budget Office. That’s not more money than at "any other time," as McCarthy said.
What about in 2015, when the government is projected to bring in 19.1 percent?
That’s still lower than revenue as a percentage of GDP in seven years of the last 40 — also not more money than at "any other time."
Federal revenue as a percentage of gross domestic product
1981: 19.6 percent
1982: 19.2 percent
1997: 19.2 percent
1998: 19.9 percent
1999: 19.8 percent
2000: 20.6 percent
2001: 19.5 percent
Source: Congressional Budget Office
McCarthy’s office told PolitiFact that CBO projects revenue in 2013 will be the highest ever in raw numbers, at $2.708 trillion, up from $2.568 trillion in 2007.
But that’s not the measure a listener would have assumed from McCarthy’s comments, which focused on revenue as a percentage of GDP — not raw numbers.
Nor are raw numbers a useful way to compare amounts of money over time.
The value of the dollar changes. Population changes. That means revenue in raw terms mostly climbs by default.
Tax policy experts we spoke with called comparisons based on raw numbers "lousy," "never valid" and "silly."
"Ignoring the increased value of the dollar and population growth both distort comparisons and make them meaningless," said Roberton Williams of the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution.
McCarthy told Fox News, "There's more money going in than any other time. In the last four decades, on average, we brought in 17.9 percent of GDP. Now we're going to bring in 19.1."
Starting in 2015, reputable projections show revenue rising to 19.1 percent of GDP, up from an average of 17.9 over the last four decades. But McCarthy’s wrong to say that there’s more money coming in than at any other time.
In fact, the nation collected more than 19.1 percent of GDP in seven years of the last 40. To say that the nation will collect the most revenue in raw dollars in 2013, according to tax experts, is meaningless.
We rate McCarthy’s statement Mostly False.
Fox News, "GOP: No time for 'roadshow president' on sequester," Feb. 25, 2013
CQ Newsmaker Transcripts, "House Majority Whip McCarthy Interviewed on Fox News," Feb. 25, 2013, subscription only
PolitiFact, "PolitiFact's guide to sequestration," Feb. 22, 2013
PolitiFact, "Fiscal cliff deal gets to heart of Obama’s tax promises," Jan. 2, 2013
Washington Post's WonkBlog, "There are now four big plans to stop the sequester," Feb. 14, 2013
Email interview with Mike Long, spokesman, Rep. Kevin McCarthy, Feb. 27, 2013
Email interview with Roberton Williams, Sol Price Fellow, Tax Policy Center, Feb. 27, 2013
Email interview with Nick Kasprak, analyst, Tax Foundation, Feb. 27, 2013
Email interview with Henry Aaron, senior fellow, Brookings Institution, Feb. 27, 2013
Congressional Budget Office, "Budget Projections — February 2013 Baseline Projections," Feb. 5, 2013
Congressional Budget Office, "Historical Budget Data — February 2013 Baseline Projections," Feb. 5, 2013
Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," February 2013
Tax Policy Center, "Historical Source of Revenue as Share of GDP," April 13, 2012
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