"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Thursday, July 21, 2011

The Regular Guy Believes.... We Are Not Undertaxed

In thinking about the debate over the federal debt limit and how to deal with the federal budget deficit going forward, let's posit a few things:

1.  There is a gap between what the federal government has committed to spend and what it expects to bring in as revenues through taxes.   We call this gap the "budget deficit."

2.  All parties, Democrats and Republicans, agree (at least they give lip service to) the premise that closing this gap is important.   Put differently, I doubt any sitting politician of any party would not agree with the proposition that balancing the budget would be a desirable thing.

3.  There are logically three (and only three) ways to balance the budget: you can lower spending until it equals revenues; you can raise revenues (taxes) until they equal spending; or you can do some combination of both.  

4.  For those like the President who believe that the budget gap should be closed in whole or in part by raising revenues, their logical premise is that Americans are undertaxed at present.  

Does the premise that Americans are undertaxed make sense?  Is it supported by evidence? 

First, forget about whether it's called income tax, or corporate income tax, or capital gains tax, or social security tax, or Medicare tax, or property tax, or license fees, or tolls, or import duties, or sales tax; and forget whether it's called federal, state or local tax.   Those are all just words.   It's all just the government's different ways of getting their cut from what Americans produce every year.   Let's put the question in its simplest form:  What percentage of GDP is taken up by government as revenues?

Well, here are the figures, all of which are drawn from the web-site http://www.usgovernmentrevenue.com/.   

Year       Pct. of GDP

1910          7.7%
1920         13.0%
1930         14.7%
1940         17.6%
1950         22.7%
1960         29.0%
1970         30.9%
1980         31.8%
1990         33.2%
2000         36.9%
2007         36.7%        

Notice anything?   It always goes up.   And, since the 1960s -- the "Great Society" -- it's always been upwards of 30%.

Ask Americans this:  do you think that government deserves more than a third of every dollar you make?   More than a third of every dollar that anyone makes?

I didn't think so.

To close the current year federal budget deficit of $1.6 trillion on a GDP of roughly $15 trillion, you'd have to hike current rates of total taxation to somewhere north of 40% of GDP.   40 plus percent.   On every dollar Americans produce. 

Do you think Americans want to pay that? 

I didn't think so.

So.... what does the Regular Guy believe?

1.  We are not undertaxed.
2.  Since 1950 or so, America has been the subject of a grand experiment in turning a great country into a socialist state incrementally, almost as if they were trying to do it without anyone noticing.   That experiment, as the credit-rating agencies are about to conclude, has been a failure.
3.   The only way back from the abyss is to cut spending, cut spending, cut spending.  Cut, cut, cut.   And then cut some more.

No comments:

Post a Comment