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1 William McBride, Written Testimony before the U.S. Senate Committee on Budget 1 (2023)

handle is hein.taxfoundation/wntsny0001 and id is 1 raw text is: TAX FOUNDATION I1 Written Testimony before the U.S. Senate Committee on Budget Apirl 18, 2023 William McBride Vice President of Federal Tax Policy and Stephen J. Entin Fellow in Economics, Tax Foundation Written Testimony to the United States Senate Committee on Budget, U.S. Congress The Size and Distribution of the Federal Tax Burden Chairman Whitehouse, Ranking Member Grassley, and distinguished members of the Senate Budget Committee, thank you for the opportunity to provide testimony on the distribution of the federal tax burden. I am William McBride, Vice President of Federal Tax Policy and Stephen J. Entin Fellow in Economics at the Tax Foundation, where I focus on how we can improve our federal tax code. Today, my testimony will focus on four points. First, I will describe the current federal tax system, showing that tax collections are near an all-time high and the burden is highly progressive. Second, I will describe how the tax code's increasing complexity adds to this burden, raising compliance costs for taxpayers and administrative costs for the Internal Revenue Service (IRS). Third, I will describe the economic costs of the tax code's high marginal income tax rates, which slow economic growth and reduce living standards. Finally, I will recommend ways to reform the federal tax code to reduce complexity and improve economic incentives, grow the economy, benefit low- and middle-income workers, and raise sufficient revenues at or above current levels. Federal Tax Collections are Near Record Highs As a result of the economic recovery coming out of the pandemic and surging inflation, federal tax collections hit an all-time high of $4.9 trillion in fiscal year (FY) 2022 that ended September 30, topping the prior year's record collections by $850 billion.' As a share of gross domestic product (GDP), federal tax collections in FY 2022 reached a multi-decade high of about 19.6 percent, up from 17.9 percent in the prior fiscal year and approaching the last peak of 20.0 percent set during the dot-com bubble in FY 2000. Only two other years in U.S. history saw federal tax collections as a share of GDP exceed the FY 2022 level, both during World War II: in 1943, federal tax collections reached 20.5 percent of GDP before falling to 19.9 percent in 1944. FY 2022 tax collections exceeded the post-war average of 17.2 percent of GDP by 2.4 percentage points. 1 William McBride, Inflation is Surging, So Are Federal Tax Collections, Tax Foundation, Oct. 13, 2022, https://taxfoundation.org/federal-tax-collections- inflation-surging/; Congressional Budget Office, Budget and Economic Data, https://www.cbo.gov/data/budget-economic-data.

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