The Static Fallacy of the CBO and the Virtue of Growth

The Federal Reserve’s data repository, FRED, presents one of the most quietly subversive truths in modern economics. Across administrations, tax regimes, and political ideologies, federal tax receipts have hovered around an average of 17.5% of GDP. This single metric, consistent across time and policy, should provoke a complete reconsideration of fiscal strategy. If no matter how high or low tax rates go, the government captures roughly 17.5% of the economy, then the only sane objective is to grow the economy. This is not ideology, it is arithmetic.

And yet, the progressive left persists in chasing higher tax rates, even as history and hard data render the strategy self-defeating. Why? Because for the modern progressive, revenue is not the end. It is the excuse. The aim is not to feed the treasury, but to reshape society. That makes tax policy less a tool of statecraft than a weapon of social reengineering.

This is not speculation, it is doctrine. Consider the words of Denis Healey, the British Labour Chancellor, who once promised to tax the rich “until the pips squeak.” The goal was not productivity or revenue, it was punishment. Redistribution as retribution. What mattered was not how much government could collect but how much it could confiscate from those it resented. The modern American progressive inherits this moral absolutism: high taxes are right, low taxes are wrong, and results be damned.

Yet the results do matter, especially when judged by the very standard progressives claim to uphold: the public good. Empirical evidence from FRED undermines their moralizing. The US government, regardless of tax rate, collects about 17.5% of GDP. If rates go up and GDP slows, the government collects less. If rates go down and GDP grows, it collects more. In real terms, the size of the pie matters more than the size of the slice.

This is the heart of supply-side logic. It is also the lesson ignored by static modeling agencies like the Congressional Budget Office. The CBO consistently underestimates the growth impact of tax and regulatory reforms. When Trump’s 2017 Tax Cuts and Jobs Act passed, the CBO predicted modest effects. Instead, GDP growth surged to 2.9% in 2018, well above forecast. Capital investment jumped, business confidence soared, and tax receipts increased. It wasn’t magic. It was motion.

The same fallacy mars the CBO’s score of Trump’s latest initiative, the One Big Beautiful Bill Act. Projecting a paltry 1.7% long-term growth rate, the CBO forecasts a $3.8 trillion increase in debt. But a growth rate of just 2.2% cuts that shortfall by more than a trillion. A 2.7% growth rate nearly wipes it out. Add in the revenue from Trump’s reciprocal tariffs, conservatively estimated at $2.3 to $3.3 trillion over a decade, and the fiscal picture flips from deficit to surplus. The math is not fuzzy, it is just inconvenient for the central planners.

Why does the CBO get it wrong? Because its models assume a static world, where tax cuts are giveaways and regulation is costless. This is Keynesian nostalgia dressed in academic robes. It denies incentives, discounts dynamism, and assumes the private sector merely reacts rather than innovates. That intellectual blindness is no accident. Most CBO directors have never built a business or managed payroll; instead, they are drawn from the ivy-covered halls of Harvard and Princeton, trained in theory but untethered from enterprise. Trump’s economic team does not share these illusions. Neither should the American people.

The Trump agenda focuses on unleashing growth: simplifying permitting for nuclear energy and pipelines, accelerating drug approvals, expanding domestic mining and drilling, and building AI infrastructure without bureaucratic drag. Each policy removes a bottleneck, and in doing so, expands the tax base. Yet the CBO ignores all of this. It includes no measure for the acceleration of permitting, no accounting for regulatory relief across entire industries, no projection of the increased oil and gas exploration, production, or refining, and no scoring for the trillions in foreign direct investment secured by Trump. Why not? Because it cannot model the real-world effects of policies it ideologically opposes. If FRED is right, and it is, then unleashing GDP is the only serious strategy. Everything else is political theater.

This is where the progressive project reveals its true priorities. It is not simply wrong about tax policy. It is hostile to economic growth. Because growth reduces dependency, and dependency is their currency of power. A larger GDP gives people more autonomy. That undermines the case for state intervention. Progressives, despite their rhetoric, do not trust people to live freely and prosper. They trust themselves to allocate resources, distribute privileges, and engineer outcomes. Higher taxes are the toll they place on that liberty.

Redistribution is also their electoral strategy. By taxing a demonized few, they buy votes from a politicized many. Student loan forgiveness, rent subsidies, welfare expansions, these are not programs, they are payoffs. That the math does not work is irrelevant. What matters is that the bill arrives after the election.

Even worse, high taxes empower the permanent bureaucracy. A complex tax code justifies an army of IRS agents, compliance officers, and lobbyists. These are not mechanisms for revenue, they are instruments of control. Simpler, lower taxes threaten their sinecures. They resist simplification not out of fiscal concern, but institutional self-preservation. Meanwhile, only a minority of Americans actually pay federal income taxes at all, further concentrating the burden on a shrinking pool of producers. This creates an upside-down incentive structure, where most citizens vote for benefits paid by others, while the tax code grows ever more opaque to sustain the illusion of fairness.

This leads to an uncomfortable truth. The tax code is not designed to raise money efficiently. It is designed to raise influence. Every deduction, exemption, and bracket is a node of political leverage. Progressives exploit this to reward allies and punish dissenters. Conservatives should dismantle it with the same clarity and resolve that Trump brings to regulation.

Growth, then, is not just an economic imperative. It is a moral one. A growing economy elevates the working class, funds national defense, and underwrites the social safety net. It does all this without coercion. It also reaffirms the central conservative principle that liberty, not redistribution, is the path to prosperity.

Trump’s approach, often derided as simplistic, is in fact the most sophisticated policy vision in Washington. It recognizes the limitations of static models, the distortions of bureaucratic incentives, and the moral hazards of dependency. It wagers, correctly, that the American people are not liabilities to be managed but assets to be unleashed.

The 17.5% rule is not just a quirk of FRED’s database. It is a mirror reflecting the futility of progressive fiscal policy. If the government only ever captures a fixed share of GDP, then policies must aim at increasing GDP. This is the only strategy consistent with both sound economics and limited government. Anything else is vanity or vendetta.

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