The Tax Revenue Capacity of the U.S. Economy

The United States imposes smaller tax burdens than do other large high-income countries, its 24.8 percent ratio of tax collections to GDP in 2010 representing the lowest fraction among the G-7. The United States also differs from other G-7 countries in relying relatively little on expenditure-type taxes. It follows that there is significant unused tax capacity in the United States that could be deployed to pay the country’s debts, but that the most promising source of additional tax revenue is expenditure taxation that is widely perceived to have very different distributional features than the income taxes on which the U.S. government currently relies. The extent to which the country is able, politically and economically, to incur greater tax burdens to pay its debts may therefore depend on its willingness to adopt a tax system that more heavily emphasizes taxing expenditures