More Tax Collection Won't Reduce the Debt, It Will Expand It

The Congressional Budget Office has released its budget review for fiscal 2025. The report shows that total federal revenue for the fiscal year that just ended exceeded $5 trillion, reaching $5.2 trillion. By comparison, total federal revenue was $500 billion in 1980, the year before the Reagan tax cuts were enacted.

For those too young to remember, the Reagan tax cuts reduced individual income tax rates across the board for all taxpayers, reducing the top marginal tax rate from 70% to 50%.  Critics said the huge tax cuts would “hollow out” the government by slashing tax revenue and starving government spending programs. The tax cuts, they said, would increase deficits, raise interest rates, reduce growth, and make the tax code less progressive.

Nobody talks about out a hollowed out government anymore. Since the Reagan tax cuts were enacted, total federal taxes have increased ten-fold. The tax cuts unleashed an economic growth boom which provided a surge of federal revenue. From $500 billion in 1980, tax revenue doubled to $1 trillion in 1990, and doubled again to $2 trillion by 2000. Total taxes reached $3 trillion by 2014, and $4 trillion by 2021.  Now, only four years later, total taxes are more than $5 trillion.

Deficits have increased, but not because taxes are too low. The surge in federal taxes has fueled a massive spending binge, giving Washington more and more money to spend every year. They have spent every dime and more. While tax revenue has increased ten-fold, spending has increased even more, from $590 billion in 1980 to an incredible $7 trillion in 2025, a twelve-fold increase.

The ever-increasing tax revenue allows spending to keep growing and enables the government to easily continue  to borrow very year. Despite the constant warnings from tax cut critics that deficits will push up interest rates, interest rates have dropped from the double-digit rates of 1980, with the 10-year Treasury dropping from 11% in 1980 to around 4%  today.

The claims that the tax cuts would make the tax system less progressive also were unfounded. The tax cuts reduced the top rate from 70% to 50%, and it is now 37%. But the tax system has become much more progressive, with high earners today paying a much greater share of total income taxes. In 1980, before the tax cuts, the top 1% paid 19% of total income taxes. Today the top 1% pays more than 40% of all income taxes, more than double the share they paid before the Reagan tax cuts.

The numbers show that the deficit problem is not the result of too little tax revenue. The problem is the opposite. Too much revenue leads to more spending and more borrowing, and lower economic growth. The deficit hawks keep calling for more tax increases. But a stronger case can be made that more tax cuts, not tax increases, are needed to reduce the tax revenue spigot, slow spending growth, and increase conomic growth.