Our nation’s fiscal trajectory is unsustainable, in part due to the decline in revenue collection stemming from a series of tax cuts. Often enacted with bipartisan support, these tax cuts have severely damaged the linkage between economic growth and revenue flows to the U.S. Treasury. The result: Even in periods when the economy is operating at full capacity, deficits and the debt grow.

Of course, some will argue that this reality implies more of an overspending problem than an insufficient revenue problem. While both sides of the budget ledger should be on the table in any fiscal sustainability discussion, data shows that U.S. spending levels are largely in line, if not below (as a share of GDP) what we expected given predictions from over a decade ago. In contrast, the United States’s revenue shortfall relative to expectations is striking.

This reality implies the need to reverse some of the tax cuts driving our revenue shortfall. Among some policymakers and members of the public, this idea is about as popular as insisting that from now on, spinach is the only dessert choice. Though the recent tariffs are an important exception, broadly speaking, Republicans are against any tax increases, and Democrats will countenance tax increases only on those with incomes above $400,000, a line in the sand that excludes around 98 percent of American households.

As far as most of today’s policymakers are concerned, the tax base should be either very small or nonexistent.

There are three dimensions of this challenge: the fiscal system’s revenue shortfall, public opinion regarding federal taxation, and how the United States can escape the revenue-squeeze cul-de-sac.

Yes, the fiscal outlook is not sustainable, but there is no imminent threat to the U.S. economy or financial system due to that outlook, and the near-term urgency of returning more rational policymakers to power is greater than the urgency of raising more revenues. Also, with affordability concerns legitimately top-of-mind for voters, households already struggling to pay for basic needs should not face lower after-tax incomes. Instead, policymakers should pursue a few broad, progressive alternatives.

Washington, We Have a Revenue Problem

Starting with some basic fiscal forensics, the arithmetic of debt sustainability shows that the debt ratio (debt-to-GDP) is a function of the growth rate, the interest rate, and the primary balance (noninterest spending relative to revenues). In the post-WWII period—from the mid-1940s to around 1980—the debt ratio fell sharply because, as Bobby Kogan of the Center for American Progress points out, the growth rate surpassed the interest rate and the government ran primary surpluses in most of those years.

Then, in 1981, President Ronald Reagan, touting a supply-side doctrine that argued, against evidence, that tax cuts mostly targeting the investor class would induce enough offsetting growth such that the cuts would pay for themselves, enacted what was then the largest tax cut in U.S. history. George W. Bush’s political trifecta produced an even larger package of cuts in 2001. When many of those cuts expired for technical reasons having to do with budget reconciliation rules, the Obama administration extended more than 80 percent of them. Republican trifectas then enacted even larger tax cuts in 2017 and 2025 under Donald Trump.

As the tax reporter Richard Rubin put it in a recent Wall Street Journal article: “Faced with Republicans’ ‘never increase taxes’ posture, Democrats adopted a ‘never increase taxes on almost anyone’ response. They calibrated it for their shifting Trump-era coalition, which includes professional-class voters in high-cost, high-income suburbs. Obama said he wouldn’t raise taxes on households with incomes under $250,000. Biden updated that to $400,000. Those pledges constrained Democrats’ ability to design tax proposals.” Two recent proposals by potential Democratic presidential hopefuls go even further than Biden, offering significant tax cuts targeting lower- and middle-income families. While at least one of these proposals (by Senator Chris Van Hollen) aims to be revenue neutral by raising high-end taxes, recent history strongly suggests that Congress would pass the tax cuts, not the increases. The other much larger proposal (by Senator Cory Booker) is scored as losing revenue, on net.

This relentless tax-cutting—especially under Bush and Trump—has partially severed an essential linkage between economic growth and tax revenue flows to the U.S. Treasury. In fiscal year 1969, the unemployment rate was a very low 3.5 percent, and revenues were 19 percent of GDP. In the latter 1990s, similarly low unemployment interacted with the Clinton tax increases (along with a spike in realized capital gains) to generate revenues of 19.5 percent of GDP. Since 2000, however, periods of full employment have produced revenues up to 3 percentage points lower. Unemployment was around 4 percent in the latter 2010s before the pandemic and again during the post-pandemic bounce-back, but revenue was around 17 percent of GDP. In 2023, the unemployment rate was even lower, 3.6 percent, yet revenues were just 16.5 percent of GDP.

The one-way ratchet on federal taxes has clearly disrupted a critical, pro-cyclical link in any economy with a progressive tax system: that between economic growth and revenue flows to the government. As one of the authors pointed out with Kogan in a report for the Center for American Progress, “If current revenues were to match the levels in fiscal year 2000 as a percentage of GDP, and from there grow only as real incomes grew into higher tax brackets, debt as a percentage of GDP would be declining indefinitely rather than rising indefinitely.” In other words, absent the relentless tax cutting, the budget outlook would be the inverse of what it is today.

A common counterargument to the above is that this revenue focus ignores our spending problem. But if we go back to earlier predictions of where federal spending and revenues would be by now, our primary spending (spending on programs, since that, versus interest, is the part Congress controls) is slightly lower than expected, while revenues are much lower. However, compared to forecasts made in 2012 by the Congressional Budget Office (CBO), primary spending is about 2 percentage points of GDP lower than expected, largely due to healthcare savings, while the revenue share has tanked by as much as 8 percentage points from CBO’s 2012 prediction.

Any plausible political deal that puts the United States on a more sustainable fiscal path will require bargains on both spending and revenues. Even though Washington is spending less than CBO projected, it can still find wasteful spending to cut. But this analysis illustrates that there is no credible path back to a sustainable fiscal path the does not include higher revenue.

And that, given where the public is on these matters, poses a steep challenge.

Public Attitudes as Constraint and Opportunity

As a general rule, Americans think most taxes are unfair and should be decreased. But important variations across taxes help illuminate a path forward.

One clear message from opinion surveys is that ordinary taxpayers very much want the privileged to pay more. Americans strongly support the principle of progressive taxation and the underlying ability-to-pay notion that those with more can and should pay more to support government functions. For decades, majorities of survey respondents have said that corporations and the rich do not pay enough. Concomitantly, majorities say tax rates on large corporations and on household income over $400,000 should be raised—including 43 percent of Republicans, and 48 percent of lower-income Republicans—in a Pew Research Center poll released in February 2025.

Americans are also deeply dismayed by extensive tax avoidance among the rich. They see the periodic media reports that this or that billionaire paid little or no tax while their own earned income is subject to third-party reporting to the IRS. They are proud to pay their own taxes, as Vanessa Williamson of the Brookings Institution has shown, but angry when the privileged don’t pay theirs. What does it mean to be a “good citizen”? In the minds of 92 percent of Americans, according to a Pew Research Center survey, it means to “pay all the taxes you owe.” This finished second only to “always following the law.”

Another clear message is that ordinary taxpayers strongly support Social Security, know they are highly dependent on the program for retirement, and are willing to pay more to shore up the system, as political scientist R. Douglas Arnold has shown. Surveys dating back to the 1970s show that the payroll tax is among the least disliked taxes, as it is clearly linked to crucial, visible benefits, which constitute the majority of income for most seniors. Survey respondents say the payroll tax is fair “because I can understand where it goes,” and “it comes back to you in the end.” In a January 2025 survey, 85 percent of American adults said they want Social Security benefits preserved, even if it means raising taxes on some or all Americans.

A third clear message is that sales taxes too are relatively popular. Even though sales taxes are regressive, taking a larger share of poorer Americans’ incomes, survey respondents are less likely to dislike sales taxes than income taxes or to think of them as unfair. One reason is that many Americans are fonder of their state governments than the federal government. They also do not total up their sales tax burden over the year. But sales taxes are also perceived as fair because this consumption tax feels controllable. “I can control what I buy,” survey respondents say. “Don’t wanna pay the tax, don’t buy the item.” Sales taxes are also seen as fair because the rich cannot bypass them. There are “no loopholes,” survey respondents say. Instead, the sales tax “applies fairly to all citizens no matter their class,” and “no one can evade it.” Moreover, “Everyone has to pay the same per dollar spent.” Yes, the sales tax is regressive. But it also appeals because no one can slip out of it, as with the income tax. And everyone paying is a principle Americans hold dear.

Where Do We Go From Here?  

The nation needs to collect more federal revenues, but doing so presents deep political challenges. This is due in part to the simple Republican message that all taxes are bad while all tax cuts are good, and because most Republicans in Congress have signed anti-tax advocate Grover Norquist’s no new taxes pledge. While both parties have participated in the tax-cutting frenzy, the fundamental asymmetry that people would rather not pay taxes inevitably helps the lower-tax political party, i.e., Republicans. But the negative long-term consequences of the nation’s mismatch between receipts and outlays are looming, and the knock-on effects for consumers, such as high mortgage, bank, and auto-loan rates, may already be upon us.

The polling does suggest some ways forward. Majorities favor tax fairness, which operationally supports progressivity. Taxpayers profess willingness to shore up Social Security. That most taxpayers are understandably angry about tax evasion, which costs the Treasury hundreds of billions per year, suggests a potent and highly just revenue source. (This is not a tax increase; it’s merely enforcing existing tax laws.) And the fact that sales, or consumption taxes, are more favorably viewed provides yet another potential path. Revenue-enhancing degrees-of-freedom are constrained, but they are not zero.

Given public opinion about the lack of fairness in the existing code (and its non-enforcement), sequencing is important. Hypothetically, the general public, including those with incomes below $400,000 and even $250,000, will be more sympathetic to paying their “fair” share if they first see wealthier families pay theirs. This insight suggests the following sequential order.

1. Aggressively reduce tax evasion. The “tax gap” between what is owed and what is paid robs the U.S. Treasury of a lot of revenue: officially, $441 billion over a decade ago, up to $700 billion today. Most of this evasion comes from those at the top of the income scale, largely because wages, which are straightforward to track and tax, often make up a small share of their income relative to less evenly reported forms of income. One recent paper found that spending $1 auditing the richest 10 percent of households reduces the tax gap by $12. For years, Republicans have cut the IRS budget, which in this context should be viewed as a shadow tax cut. Taxpayers with more modest means are well within their rights to argue that before they pony up more, the wealthy should be held to account.

2. Enact President Biden’s high-end revenue raisers. In the final year of the Biden presidency, his economic and tax teams (which included co-author Bernstein) generated revenue-raising tax policies that met the President’s pledge not to raise taxes on anyone below $400,000 while raising roughly $3 trillion over 10 years. The policies, presented in detail in the 2024 Greenbook, ranged from standard progressive proposals—raise the top income tax rate (to 39.6 percent from 37 percent), raise the corporate tax rate (to 28 percent from 21 percent), tax capital gains at death (thereby closing the “step-up basis” loophole), and stop favoring capital gains and dividends for incomes over $1 million—to new, highly progressive ideas, like a 25 percent minimum tax on unrealized capital gains for incomes over $100 million.

These ideas shared two characteristics: They were strongly supported by most taxpayers, who wouldn’t be hit by them, and they were dead-on-arrival in Congress, and not just due to Republican opposition. There are 11 tax lobbyists per member of Congress, and precious few are there to fight for progressive ideas like expanding the Earned Income or Child Tax credits. Most are there to block precisely ideas like those in the Biden Greenbook.

That said, because such revenue raisers are generally favored by the broad public, policymakers should keep fighting for them. Research shows that the public supports higher taxes on both income and wealth for those at the top. Wealth taxes, like the 25 percent minimum tax noted above, are gaining traction. Both national and state-level proposals have recently surfaced, and several states have enacted so-called millionaires taxes on high incomes.

3. Raise the Social Security “tax max.” Because of earnings growth at the top of the income spectrum, the payroll tax for Social Security applies to a smaller share of total earnings than it used to: currently 83 percent, down from 90 percent after the last Social Security rescue in the early 1980s. That’s because under law, people pay Social Security taxes only up to a certain taxable maximum, which increases a little every year. For 2026, this figure is $184,500.

There are many options for increasing the earnings to which the payroll tax applies. Returning to 90 percent of total earnings would close 28 percent of the 75-year funding gap, according to Social Security Administration calculations. Applying the payroll tax to all earnings, as is the case with Medicare, would close 67 percent of the gap. Applying the payroll tax on earnings above $400,000 and providing some benefit credit above the current maximum would close 58 percent of the gap. Applying the tax to premiums for employer-sponsored health insurance would close 28 percent of the gap, although that would burden middle- and lower-income earners as well. A recent National Academy of Social Insurance survey showed the greatest public support for a package that removes the cap on earnings above $400,000 (the most popular single proposal), increases the tax rate from 6.2 to 7.2 percent on employees and employers, and maintains the retirement age of 67. (The package, along with a few additional changes, “would eliminate Social Security’s projected long-term financing gap.”) Large majorities want to see Social Security preserved and support a rescue that both centers on high earners who have enjoyed strong wage growth and maintains the cross-class coalition behind the program by spreading responsibility across earners.

4. Consider adopting a progressive value-added tax. One thing almost everyone in this debate can agree on, from taxpayers to tax experts, is that the current system is broken. It is massively complex, and asymmetrically so, meaning its complexity redounds to the benefit of the wealthiest Americans interested in avoiding or evading taxes. Companies that make jet engines employ hundreds of tax lawyers to take advantage of this complexity, a highly inefficient arrangement that does nothing for American productivity. Meanwhile, the public correctly views the system as not just mind-numbingly complex, but profoundly unfair.

Is it broken beyond repair? Perhaps not, but given the facts of our system’s deeply embedded dysfunction, this may be a good time to think outside the box and consider a quite different tax structure.

It is no longer true that Republicans will never raise taxes. In Trump’s second term, they have done so, or at least tacitly approved of their leader’s sweeping tariffs, a sales tax on imports that collected $264 billion in revenues in 2025, compared to nearly $80 billion the previous year, and almost half that in 2017. The tax raised 2025 inflation (by between 0.5 and 1 percentage point), and its unstable and even illegal implementation (the Supreme Court struck down the administration’s main rationale for many of its tariffs) has led to considerable economic uncertainty.

But from a revenue standpoint, the tariffs succeeded in raising significant funds without being particularly disruptive to U.S. GDP growth. One problem is that tariffs are a regressive tax on a very narrow base: goods imports, which amount to around 11 percent of GDP.

This may thus be a good time to junk much of the current system and introduce a progressive Value-Added Tax (VAT), a sales tax applied to the value added of the things Americans buy at each stage of production, with refunds for the earlier stage (so the baker pays the tax on her value added and gets refunded for the tax the farmer paid on her value added). A VAT with a broad base, such as the model described by William Gale of the Brookings Institution in this symposium could raise trillions in revenues in a far simpler way than our current system, with many fewer distortions.

The reader might be wondering: Having just criticized a sales tax on 11 percent of GDP as regressive, why endorse one imposed on a far larger share of the economy (consumer spending is almost 70 percent of U.S. GDP)? In fact, there are many VAT models that achieve progressivity through exempting purchases disproportionately made by lower income people and/or refunding their income. Gale stresses the latter, and his proposal includes a Universal Basic Income component, targeted at lower and middle-income families to offset the VAT’s regressivity. We prefer the model described by Artur Swistak and Rita de la Feria, which uses existing technology to provide real-time refunds at point-of-sale based on household income.

This is not the place to elaborate on details, and there are reasons why the timing of this proposal is suboptimal. Just like tariffs, but even more so because of their broader base, VATs raise prices and thus would be accused of exacerbating the American affordability crisis. But especially if we paired a progressive VAT with the ideas above that improve tax fairness—closing loopholes that benefit the wealthy, and closing the tax gap—and given that polling shows Americans feel better about sales taxes than income taxes, now may be a good time for progressives to consider a VAT, especially given how broken the current system is.

Raising revenues is never easy. But the nation’s fiscal path is unsustainable. A sequential plan can capitalize on what Americans care about while raising revenues to ensure their future prosperity. This new agenda promises both to address Americans’ fairness concerns and dismay about the status quo and to combat the considerable pain the present trajectory will wreak without action.