The United States ran a deficit of $1.77 trillion in fiscal year 2025 — 5.8 percent of everything the economy produced. Washington's standard explanation is that spending has run wild. It hasn't, or at least not in the way the phrase implies. The real story is on the other side of the ledger: federal revenue last year came to 17.3 percent of GDP, which is, to the decimal point, exactly its average since 1962. America has spent six decades adding a retirement and health care system for a population that has aged dramatically, while holding the tax take frozen at the level that financed the Cold War. That is not a spending problem. That is a decision, taken repeatedly, not to pay.
The two lines
Start with the arithmetic. In FY2025 the federal government took in $5.24 trillion and spent $7.01 trillion. As shares of the economy: 17.3 percent in, 23.1 percent out.
Strip out interest — money spent on the past rather than on anything a citizen receives today — and spending on actual programs was 19.9 percent of GDP. Against revenue of 17.3 percent, that leaves a primary deficit (the gap before interest) of 2.6 percent of GDP, about $790 billion a year.
Now the comparison that the "spending problem" case rests on. Since 1962, program spending has averaged 18.6 percent of GDP; last year it was 19.9 percent, about 1.3 points above the long-run norm. That average is flattered a little by the two pandemic years, when program spending hit nearly 29 percent of GDP and pulled the mean up; leave 2020 and 2021 out and the gap is closer to 1.6 points. Revenue has averaged 17.3 percent, and last year it was 17.3 percent. Dropping the pandemic years moves that average by two-hundredths of a point: it is 17.3 percent whether or not you count the pandemic.
One caveat runs in the other direction, and it cuts in favor of the argument rather than against it. Last year's 17.3 percent was itself propped up by the new tariffs: customs duties, estate and gift taxes and miscellaneous receipts — everything outside the income, payroll and excise taxes — jumped from 0.5 percent of GDP in 2024 to 0.9 percent in 2025, worth roughly $120 billion, and tariffs are about nine-tenths of that increase. Take that away and revenue was nearer 16.9 percent of GDP — below the sixty-year average, not level with it.
Both sides of the ledger can point at that. The spending hawks say: program spending is above its historical average and revenue is right at it, so the excess is spending. That is the frame behind Brian Riedl's work at the Manhattan Institute and Adam Michel's at Cato. Brookings states the imbalance more neutrally: federal "non-interest spending and revenues are out of balance, generating sizable primary deficits that are persistent relative to historical patterns." Alan Auerbach and William Gale draw no hawkish conclusion from that — they frame the fix symmetrically, as permanent spending cuts or tax increases worth 2.33 percent of GDP.
The problem with the hawks' reading is the benchmark. It treats 1962 as a neutral yardstick. It is not.
1962 is not a fair comparison, and it flatters spending
In 1962, 9.0 percent of Americans were 65 or older. Today it is 18.4 percent on the World Bank's estimates — more than double. In 1962 there was no Medicare and no Medicaid; both were created by the Social Security Amendments of 1965. And national defense absorbed 9.0 percent of GDP, more than three times today's 2.9 percent.
So when someone says spending is a point and a half above its 1962-to-now average, what they are actually describing is a country that doubled its retired population, invented public health insurance, and paid for both almost entirely by shrinking everything else.
Social Security, Medicare and Medicaid together cost 2.4 percent of GDP in 1962 — all of it Social Security. Last year they cost 10.7 percent. That is a rise of 8.3 points of GDP. Net interest added another 2.0 points, and everything else in the mandatory budget put together added 0.8.
Over the same period, defense fell by 6.1 points. Nondefense discretionary spending — the part of the budget Congress votes on every year, covering everything from the FBI to the national parks to medical research to air traffic control — was 3.3 percent of GDP in 1962 and 3.2 percent last year, below its 3.7 percent average and barely above its record low of 3.1 percent, which it hit in 1999 and again in 2017, 2018 and 2019. Total discretionary spending, defense and nondefense together, fell from 12.3 percent of GDP to 6.1 percent. It was cut in half.
That is not a government that lost control of spending. It is a government that made room, at considerable political cost, for the two things it decided to buy: retirement security and health care for the old.
And those are precisely the two things voters will not give up. Pew finds that 79 percent of Americans say Social Security benefits should not be reduced in any way — and half of those want them expanded, not merely protected. Pew describes the view as broadly shared across ages, parties and income brackets; the published breakdown is by party, where Republicans come in at 77 percent and Democrats at 83. KFF's polling finds at least three-quarters of the public opposed to major funding cuts for Social Security (84 percent), Medicare (79 percent) and Medicaid (76 percent), including at least two-thirds of independents in each case. You can call that unreasonable. You cannot call it unclear.
Revenue didn't drift down. It was pushed
The revenue line did not stay at 17.3 percent because that is some natural resting point for the American tax system. It kept trying to rise, and kept getting knocked back.
Revenue hit 19.1 percent of GDP in fiscal 1981. The Economic Recovery Tax Act cut the top rate on unearned income from 70 percent to 50, effective in 1982 — earned income had already been capped at 50 percent since 1972 — and by 1984 revenue was down to 16.9 percent. The recession of 1981–82 did some of that work too. Revenue climbed back through the 1990s, helped by the 1993 rate increase, and reached 20.0 percent in fiscal 2000, the highest figure in the sixty-four years charted here. The budget ran a surplus for four straight years, 1998 through 2001 — the longest run of surpluses in the postwar era, and the only one since 1969.
Then came the 2001 and 2003 tax cuts, and revenue fell to 15.6 percent by 2004. It recovered to 18.0 percent by 2007; the financial crisis drove it to 14.5 percent in 2009, and it was still only 15.2 percent in fiscal 2012 — after which the American Taxpayer Relief Act, signed in January 2013, made most of the Bush cuts permanent, though it did let the top rate return to 39.6 percent. It climbed again to 17.9 percent by 2015, drifted to 17.1 percent in fiscal 2017 — and the Tax Cuts and Jobs Act dropped it to 16.3 percent in 2018, where it sat in 2019, the last year before the pandemic.
The pattern has now repeated once more. In July 2025 the One Big Beautiful Bill Act made the 2017 individual rates permanent and added new cuts. The Committee for a Responsible Federal Budget's tally of CBO's conventional score puts the cost at roughly $3.4 trillion over ten years, or about $4.1 trillion once you count interest on the extra borrowing; CRFB's own estimate, which treats the temporary provisions as the permanent ones everyone expects them to become, is more than $5.5 trillion. Fiscal 2026 is the first year the law fully bites, so it barely touches the chart above.
Twice in forty-five years, revenue climbed to the neighborhood of 19 or 20 percent of GDP — close to the level that pays for the programs themselves — and twice a tax cut took it straight back down. Two further cuts, in 2017 and 2025, pushed it down again from a lower starting point. Calling the resulting flat line "revenue at its historical average" is like calling a thermostat naturally set to 68 degrees while someone stands next to it turning it down.
Who actually pays — and who stopped
The composition of that flat revenue line changed enormously, and not in the direction you might guess.
The corporate income tax raised 3.5 percent of GDP in 1962. Last year it raised 1.5 percent — less than half. Excise taxes fell by a further 1.8 points, to 0.3 percent of GDP, offset only slightly by a rise in customs duties and other odds and ends. What filled those holes was the payroll tax, which doubled from 2.9 percent of GDP to 5.8 percent, with the individual income tax adding a point of its own: 7.8 percent of GDP in 1962, 8.8 percent now.
Payroll taxes are the most wage-concentrated tax the federal government levies. The Social Security portion stops entirely above a wage cap, and none of it touches capital gains, dividends, rents or business profits. The corporate tax, whatever you think of its efficiency, is assumed by both CBO and the Joint Committee on Taxation to fall about three-quarters on owners of capital — who are overwhelmingly at the top — though a serious empirical literature argues that workers bear more of it than that. So the sixty-year story is a tax system that raised the same total while shifting its base toward wages.
One complication cuts against the simplest version of this argument. CBO's distributional data show the top 1 percent paying an average federal tax rate of about 31.5 percent in 2022 — a point above the 1979-to-2000 average of 30.5 percent that the Tax Foundation computes from the same series. The rich are not paying a collapsing share of their own income. What changed is that a far larger share of national income now sits at the top, and that the taxes which reach capital income shrank while the ones that reach wages grew. The system did not become dramatically less progressive in its rates; it became dramatically smaller relative to the government it has to fund, and it did so at the end where the income growth was.
The comparison Washington never makes
There is one more benchmark, and it is the one that should settle the argument. Compare America not to its own past but to the other rich democracies trying to fund similar promises to similar aging populations.
In 2023, the most recent year with final data for all 38 OECD members, total American taxes — federal, state and local, including social security contributions — came to 25.6 percent of GDP. The OECD average was 33.7 percent. The United States ranks seventh from the bottom; only Mexico, Chile, Ireland, Colombia, Türkiye and Costa Rica collect less. Not one other G7 country is anywhere near: Japan takes 33.7 percent of GDP in taxes, Canada 34.8, Britain 35.0, Germany 37.3, Italy 41.5, France 43.9.
The gap between America and the OECD average is 8.1 points of GDP. At today's economy that is roughly $2.5 trillion a year — more than the entire federal deficit, with about $700 billion to spare. That is a measure of scale rather than a plan: the OECD figures count state and local taxes alongside federal ones, so closing the gap would not deposit $2.5 trillion in the Treasury. What it shows is how much room the American tax system has, judged against countries carrying similar promises.
The strongest objection, and what survives it
The serious counter-argument is not that spending is fine. It is that revenue alone cannot get there. Riedl's careful version: an aggressive tax-the-rich agenda might raise about 2 percent of GDP at the absolute maximum, with a realistic range of roughly 1 to 2 percent. The Peterson Foundation's write-up puts it plainly — trillions are genuinely available at the top, and it still is not enough on its own. Those are one source and not two, incidentally: the Peterson piece is a summary of Riedl's paper.
That objection is correct, and it should be conceded. Taxing the top alone will not close a gap this size, and anyone promising otherwise is selling something.
But what that objection establishes is that the revenue increase has to be broader than the top 1 percent — a value-added tax, a carbon tax, higher rates across the upper middle as well as the top, a corporate tax that collects more than 1.5 percent of GDP. That is an argument about which taxes, not about whether the answer is taxes. It is not an argument for cutting Social Security, Medicare and Medicaid, which is where the money would have to come from on the spending side, and which voters have consistently refused.
The size of the job is easy to understate. Closing the primary deficit takes about 2.6 points of GDP, which would put federal revenue at roughly 19.9 percent. That closes the current gap; it does not stabilize the debt, because interest is running ahead of growth. CBO's February 2026 outlook has the primary deficit easing down over the coming decade, from 2.6 percent of GDP to about 2 percent, while net interest climbs by a further 1.4 points and pushes the total deficit up regardless — to 6.7 percent of GDP by 2036. Estimates of what full stabilization would take vary widely with the target and the horizon: Auerbach and Gale at Brookings put the required adjustment at 2.33 percent of GDP, Riedl at around 5 percent in noninterest savings. Both are permanent adjustments rather than one-off savings, and at the high end 5 points of GDP is more than four-fifths of the entire discretionary budget — which makes the revenue side more indispensable, not less.
Still, the first 2.6 points are not exotic. America collected 20.0 percent of GDP in fiscal 2000. That peak was flattered by a stock-market bubble and the capital gains it threw off, so it is not a level that arrives on its own — but it was not confiscatory taxation either, and it coincided with what was, at the time, the longest economic expansion on record. Getting back there would leave total American taxes somewhere around 28 to 29 percent of GDP — four to six points below today's OECD average, and still dead last in the G7.
What follows
None of this means spending should be exempt from scrutiny. Health care costs are the deepest problem in the American budget and the American economy alike, and the productivity of federal health spending is a legitimate and urgent question. Nor does it mean the deficit is imaginary: at 5.8 percent of GDP with interest at 3.2 percent and climbing, it is real and it compounds.
What it means is that the framing is backwards. The country did not lose control of its spending. It cut defense by two-thirds of its share of the economy, held nondefense discretionary spending flat for sixty years, doubled its elderly population, built two health programs — and then, four separate times, cut the taxes that would have paid for it. Every one of those tax cuts was a choice. Every one is reversible.
If you want to argue that Americans should have a smaller government, that is a real position and there is an honest way to make it: name the programs. But if the government stays roughly the size that voters keep voting for, the arithmetic points overwhelmingly in one direction, and it is the revenue side of the page.