Economic growth raises taxes and not just in dollar terms

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Matt Yglesias explains how economic growth raises taxes. Not just in dollar terms (bigger economy, bigger pie, more tax revenue) but in share of GDP terms. You can see that casually from yonder chart:

here are a few reasons for this. But maybe the most important one is that we have progressive taxation in this country. Richer people pay not just higher taxes, but a higher share of their income in taxes. So if the economy grows and people get richer, the share of their income they pay in taxes goes up and—ta da—the tax share of GDP goes up. Since it’s much easier to pay for new programs by restraining the quantity of tax cuts than to pay for them by raising taxes, this means that rapid GDP growth is a friend of progressive governance. This, in turn, is one reason why tax reform that closes loopholes in exchange for cutting rates could be such a useful idea. It’s a huge shame that we went through this whole standoff and haven’t come away with any path forward on this.

Peter Schorsch is the President of Extensive Enterprises and is the publisher of some of Florida’s most influential new media websites, including SaintPetersBlog.com, FloridaPolitics.com, ContextFlorida.com, and Sunburn, the morning read of what’s hot in Florida politics. SaintPetersBlog has for three years running been ranked by the Washington Post as the best state-based blog in Florida. In addition to his publishing efforts, Peter is a political consultant to several of the state’s largest governmental affairs and public relations firms. Peter lives in St. Petersburg with his wife, Michelle, and their daughter, Ella.