The “right” level of taxation and spending is a perennially contentious issue that sparks passion on all sides and is particularly timely given the new administration. Bloomberg columnist Justin Fox published a balanced piece on January 23rd containing some very insightful data and perspective. One component of the debate is whether U.S. taxes are high or low. He employed the common definition of taxes which is the sum of federal, state, and local government receipts as a percent of GDP. Using that metric, U.S. taxes were the seventh lowest among the 38 OECD countries and the fourth from the bottom among the ten largest economies in the world. So, it certainly does not appear that U.S. taxes are “high.” The real question is how they compare to outlays.
In his confirmation hearing, Treasury Secretary nominee Scott Bessent argued that we have a spending and not a revenue problem. This chart appears to support his assertion. Note that receipts (the solid blue line) are right in line with historical levels. (the gray dashed line) However, spending (the solid black line) is materially above the 1946-2024 average. (the dashed red line) Given the difficulty in cutting spending, it will be interesting to see if the new administration can enact its desired tax cuts without a major widening of the gap depicted above.