Brookings Charts Show Tax Hikes Cannot Fix Washington’s Spending Problem

A new Brookings Institution chart book by Jessica Riedl delivers a blunt warning for Washington: the federal budget problem is being driven by spending, not a lack of tax revenue. The charts show that even extremely aggressive tax hikes would fall far short of stabilizing the long-term budget, while higher tax rates on work, investment, and business would threaten growth and competitiveness.

The Math Does Not Support a Tax-Hike-Only Strategy

The most striking chart shows that even a 100% tax rate on all untaxed personal, small business, and investment income above $1 million would not balance the long-term budget. The same is true even if the threshold were lowered to $500,000. Riedl’s chart compares those potential revenues with projected deficits that rise from 5.8% of GDP in 2026 to 14.2% of GDP by 2056.

That finding cuts through one of Washington’s favorite talking points. Politicians often pretend that the federal budget can be fixed by taxing high earners, investors, and small businesses more heavily. The numbers do not support that claim. Even confiscatory tax rates would not close the gap because the spending side of the budget is growing too fast.

Spending Is the Driver

Riedl’s chart on long-term deficits makes the core problem clear. From 1960 through 2025, federal spending averaged 20.5% of GDP, while tax revenues averaged 17.3% of GDP. By 2056, spending is projected to reach 32.2% of GDP, while tax revenues remain around 18% of GDP under the current-policy baseline.

This is the central budget fact Congress cannot ignore. Revenues are not collapsing. Spending is rising far beyond the country’s normal tax base.

Higher Tax Rates Do Not Guarantee Higher Revenue

The chart book also challenges the claim that higher tax rates automatically produce higher revenue. Riedl shows that income tax revenues have remained relatively constant regardless of the top income tax rate. The 1950s had an average top income tax rate above 90%, but income tax revenues averaged 7.2% of GDP. The 2020s have had an average top rate near 37%, yet income tax revenues have averaged 8.7% of GDP.

This does not mean tax rates never affect revenue. It means there are limits. Taxpayers respond to incentives, investment decisions change, income shifts, and the economy adjusts. Washington should not build a fiscal strategy around the assumption that higher rates will mechanically produce enough money to finance permanent spending increases.

Income Tax Revenues Are Already Running Above Average

Another chart shows individual income tax revenues remaining above average due to real bracket creep and taxable retirement distributions. Real bracket creep occurs when incomes rise faster than inflation and push taxpayers into higher tax brackets, increasing their average tax burden over time.

This is especially important after the Working Families Tax Cuts protected families from large scheduled tax increases. Congress should not turn around and use rising revenue projections as an excuse to spend more. A growing economy should help taxpayers and reduce fiscal pressure, not become another reason for Washington to expand government.

Capital Gains Tax Hikes Are a Weak Revenue Tool

Riedl’s capital gains chart makes another important point: high capital gains tax rates have not produced more revenue. The chart shows a negative correlation between top capital gains tax rates and capital gains tax revenues as a share of GDP from 1954 through 2025.

This should be no surprise. Capital gains taxes are highly sensitive to taxpayer behavior.

Investors can defer realizations, change timing, hold assets longer, or avoid taxable transactions. Raising the rate can reduce the activity being taxed.

For a pro-growth economy, this is the wrong direction. Capital formation, entrepreneurship, and investment are essential to stronger wages and higher productivity. A tax code that punishes investment will not solve Washington’s spending problem.

Corporate Tax Competitiveness Should Not Be Sacrificed

Riedl’s corporate tax charts show how much progress the U.S. made after the Tax Cuts and Jobs Act. Before the 2017 reforms, the U.S. combined corporate tax rate was 38.9%, the highest in the OECD. After the reforms, the U.S. rate fell to 25.6%, bringing America closer to international norms.

Another chart shows the U.S. finally catching up with the rest of the OECD on corporate tax competitiveness. The U.S. corporate rate moved from roughly 39% before reform to about 26%, while the average rate among other OECD countries stood near 23%.

Congress should not reverse that progress. Higher corporate tax rates would make the U.S. less competitive, discourage investment, and weaken the country’s ability to keep jobs and capital at home. A less competitive tax code would not fix the debt. It would make the economy less able to carry it.

CFE Takeaway

The new Brookings charts point to a simple conclusion: Washington cannot tax its way out of a spending problem.

Even extreme tax hikes on high earners, investors, and small businesses would not balance the long-term budget. Income tax revenues have remained relatively stable across very different top tax rates. Capital gains tax hikes have not reliably produced more revenue. Corporate tax competitiveness has improved only because Congress moved the U.S. away from one of the worst business tax systems in the developed world.

Congress should focus on spending discipline, entitlement reform, and pro-growth tax policy. Raising taxes on families, investors, and employers would weaken the economy without solving the budget problem.