‘Biggest tax increase in history” is an arresting phrase, one frequently thrown around in the context of the president’s health-care law. The revenue increases in that law will, according to PolitiFact, raise taxes as a percentage of GDP by 0.49 points. That’s pretty big, but consider the 2006 Treasury paper cited by PolitiFact. Its author, Jerry Tempalski, analyzed tax increases since 1940 and found quite a few tax hikes that are bigger by most measures (charts updated to 2010 are here).
But significantly more substantial in revenue terms than the Affordable Care Act is President Obama’s 2013 budget, which would raise $1.6 trillion over the next ten years. How does that tax increase, considered as one proposal, compare with historical numbers? It does in fact rank up there with the biggest tax increases of the modern era.
The president’s budget phases in its tax increases over time and counts some stimulative tax cuts against his revenue proposals at first. So, as PolitiFact did with the Affordable Care Act, we should look down the line to find out what the president’s revenue increases, fully implemented, will mean as a percentage of GDP.
One way to do that is to pick a representative year, 2017. The president’s proposals are calculated to raise $189 billion, or 0.93 percent of GDP, in that year. (These figures are based on the revenue assumptions on page 205 and the economic projections on page 435 of the president’s budget.) When you look at a broader span, 2015 to 2018, his plan raises an average of 0.84 percent of GDP; in 2022, 0.90 percent.
That’s nowhere near as big as some pre-1968 tax increases, but it is the third-biggest, and quite close to the biggest, since 1968 — an era whose revenue measurements Tempalski considers more accurate and certainly one that is more relevant. The much larger pre-1968 revenue bills (several percentage points of GDP) were used to fight World War II and pay down the debt accrued in doing so. It seems reasonable to exclude these tax hikes when considering a burden the American people are now asked to shoulder in peacetime (though of course claims such as Rush Limbaugh’s, that the health-care law is “the biggest tax increase in the history of the world,” can still hardly be justified).
The only post-1968 bills to top the president’s $1.6 trillion plan are the Revenue and Expenditure Control Act of 1968, which over its first two years raised taxes by 1.09 percent of GDP, and the Tax Equity and Fiscal Responsibility Act of 1982, which raised taxes 1.23 points in its fourth year and 0.98 points over the first four. Those two tax increases were, by this measure, bigger than the tax increase in Obama’s proposal, but not by much.
That’s if we assume that the share of GDP is the right way to assess the size of increased government burdens. In terms of economic effects, perhaps it is, but government should not necessarily grow at the rate the economy does. So what about other comparisons?
When we look at just nominal dollars, the president’s plan would, unsurprisingly, be much bigger than any tax increase ever, at $189 billion in the fourth year after implementation, topping the Affordable Care Act, which Tempalski calculates will raise $76.8 billion in revenue in its fourth year of implementation. (The CBO doesn’t find that level of revenue until 2020.) The largest increase before this was the 1993 budget act, which raised $66 billion in the most expensive year Tempalski measured, its fourth.
But more meaningfully, the president’s proposal is also the biggest tax increase since 1940 when adjusted for inflation. If you convert the revenue estimates from 2017 into 1992 dollars, the year that the original Treasury paper uses, the president’s plan raises $108 billion. No plan that Tempalski considered raised a higher amount, and it is possibly the highest amount ever. The second-biggest tax increase overall since 1940, after Obama’s, is the Revenue Act of 1942, which raised $73 billion in 1992 dollars. The second-biggest increase since 1968 was the 1993 tax hike, which in its fourth year raised $62 billion.
A final measure of the size of President Obama’s proposed tax increase is the increase as a percentage of total federal receipts. The president’s budget would raise that total by 5.1 percent in 2017 relative to the revenue baseline the document provides. That’s more than all but two increases since 1968: again, the 1982 act, which raised tax revenue by 7.2 percent in its fourth year (and 5.7 percent over its first four years), and the 1968 bill, which raised tax revenue by 6 percent over its first two years. These numbers all pale in comparison with some increases from the 1940s and 50s, six of which increased federal receipts by more than 9 percent. (The Revenue Act of 1942 raised receipts by 71 percent. Remember when we used to do big things, America?)
True, the nominal size of President Obama’s tax increase, like that of the taxes contained in the health-care law, dwarfs anything the U.S. government has ever raised from a tax proposal, though this comparison is almost meaningless. But his ten-year revenue plan is big enough to rank up there on the Mount Rushmore of revenue: It is the third-biggest tax increase as a percentage of GDP since 1968 and, in dollars adjusted for inflation, the biggest since 1940.
— Patrick Brennan is a William F. Buckley Fellow at the National Review Institute.