CBO Chief Elmendorf Testifies on Tax and Deficit Projections

Doug Elmendorf,director of the Congressional Budget Office, testified before the Senate Finance Committee on Thursday on historical trends in federal tax revenues and rates. His testimony took a look at federal rates, tax bracket percentages and federal spending as a percentage of GDP in the recent past, as well as how these issues are trending for the near future.

Among the highlights of his testimony:

• Over the past 40 years, federal revenues have ranged from nearly 21% of GDP in fiscal year 2000 to less than 15% in fiscal years 2009 and 2010, averaging 18% of GDP over that span. Most of the revenues—about 82% in 2010—come from the individual income tax and the payroll taxes used to finance Social Security, Medicare, and the federal unemployment insurance program.
• The highest marginal income tax rate (the tax rate that applies to the top tax bracket) was as high as 70% as recently as 1980, although a lower maximum rate applied to earnings in that year. Since 1988, the highest marginal income tax rate has ranged from 28% to 39.6%.
• The two largest tax expenditures are the deduction of mortgage interest on owner-occupied residences and the exclusion of employers’ contributions for health care, health insurance premiums and long-term care insurance premiums from the individual income tax. Each of those results in forgone revenues equal to about 9% of individual income tax revenues.
• In 2007, households in the bottom fifth, or quintile, of the income distribution paid about 4% of their income in federal taxes, while the middle quintile paid 14% and the highest quintile paid 25%.

A summary of Elmendorf’s testimony is available on his blog.