The Congressional Budget Office released their long-term budget outlook last Tuesday. On the spending side, growth has slowed relative to their previous long-term projection largely because of reduced projected federal health spending on Medicare, Medicaid, CHIP, and the health insurance exchange subsidies. Given that the trajectory of federal spending in coming decades is almost entirely driven by health costs, this is a most welcome change.

On the revenue side, to no one’s surprise, things look considerably worse because of the tax cuts enacted by the American Taxpayer Relief Act (ATRA)—otherwise known as the “fiscal cliff deal”. The 2001 and 2003 tax cuts were made permanent for 99 percent of taxpayers and the alternative minimum tax parameters were indexed to inflation. As a result, CBO projects that by 2038 federal revenues will be about 3.7 percent of GDP lower than previously thought. As Nicole Woo of Center for Economic and Policy Research has pointed out, the latest CBO report suggests strongly that in containing projected long-run deficits, the U.S. has a tax problem, not a spending problem.

An under-appreciated part of this tax problem is the continued tax avoidance (and sometimes outright evasion) by many U.S. multinational corporations. CBO assumes that corporate tax revenues will average 2.2 percent between 2014 and 2023—basically falling from 2.5 percent of GDP in 2015 to 1.9 percent by 2023. After 2023, CBO assumes that corporate tax revenues will remain at 1.9 percent of GDP, which is about what the average was between 1973 and 2012.

But the importance of corporate income tax revenues has steadily fallen since 1946. In the 1950s, corporate income tax revenue was about 4.5 percent of GDP and the average between 1946 and 1986 was 3.2 percent of GDP. If corporate tax revenues are higher by one percent of GDP after 2014, then the deficit would be reduced by about one percent of GDP every year (actually a little more because net interest payments would be slightly lower). Because of the reduced deficits, the debt-to-GDP ratio would be about 5 percent lower in 2040 than CBO’s projection.

A good start toward increasing corporate tax revenues was introduced in the senate yesterday by Senators Levin, Whitehouse, Begich, and Shaheen. The Stop Tax Haven Abuse Act (S. 1533) would close some corporate loopholes and provide measures to combat the corporate use of tax havens to evade paying U.S. taxes.