In a paper released this year, economists Carmen M. Reinhart, Vincent R. Reinhart, and Kenneth Rogoff said that periods of “debt overhang” – when accumulated gross debt exceeds 90 percent of a country’s total economic activity for five or more consecutive years – reduce annual economic growth by more than one percentage point for decades.
Over 20 years, the authors write, there can be a “massive cumulative output loss” that reduces gains by 25 percent or more. The U.S. went over the 90 percent threshold after the 2008 financial crisis. At $16.3 trillion, our current gross federal debt represents more than 100 percent of 2012’s total economic activity or gross domestic product…
A little history: 2000 was about the best year ever for federal revenue since 1950. The government raked in slightly more than $2 trillion in nominal dollars and $2.3 trillion in inflation-adjusted (fiscal year 2005) dollars. When measured as a percentage of GDP, revenue reached 20.6 percent, the highest fraction ever recorded in peacetime. Although it’s true that receipts in 2006 and 2007 topped the $2.3 trillion mark in constant 2005 dollars, those totals represent smaller fractions of GDP, 18.2 percent and 18.5 percent, respectively. So it’s fair to call the $2.3 trillion in constant dollars a high-water mark. (All these figures are drawn from the 2013 Historical Tables generated by the OMB; see table 1.3.)
The high level of revenue – both in constant dollars and as a percentage of GDP – was reached in a roaring economy. And all Americans were taxed at significantly higher levels than they are now.