US Government Debt Different - Finance Department - University of ...

James R. Hines Jr 11310The Tax Revenue Capacity of theU.S. EconomyJames R. Hines Jr.Summary: The United States imposes smaller tax burdens than doother large high-income countries, its 24.8 percent ratio of tax collectionsto GDP in 2010 representing the lowest fraction among theG-7. The United States also differs from other G-7 countries in relyingrelatively little on expenditure-type taxes. It follows that thereis significant unused tax capacity in the United States that couldbe deployed to pay the country’s debts, but that the most promisingsource of additional tax revenue is expenditure taxation that iswidely perceived to have very different distributional features thanthe income taxes on which the U.S. government currently relies. Theextent to which the country is able, politically and economically, toincur greater tax burdens to pay its debts may therefore depend onits willingness to adopt a tax system that more heavily emphasizestaxing expenditures.1. IntroductionPolitics famously impedes cogent discussion of long-run governmentbudget issues, but for all of the partisan controversy over U.S. fiscalpolicy, there is little dispute over the plain fact that the United States