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A reminder not to forget about revenue or growth

January 23, 2013

In my post yesterday discussing the growth in government spending I failed to mention the revenue side of the equation, but a piece by Eduardo Porter in The New York Times reminded not to forget about taxes. Porter’s op-ed echoes a blog post by M.S. at The Economist from a couple of weeks ago that also contributed to my thoughts here.

Maintaining a minimum tax burden on society is an important goal, but it is a means to an end; the end being a more prosperous society. If it turns out that the best thing for society is a higher overall tax burden we should not fight it. Spending on the social safety net is going to continue increasing, and while we can buy ourselves a little breathing room via cuts to the defense budget, total government spending going forward will make up a larger share of GDP than it does today. Couple that with the fact that we are currently running a trillion dollar deficit and that might sound disconcerting. The picture looks a bit better though when you consider this other fact: According to the OECD, in 2011 total tax revenue in the United States was 25.1% of GDP while the OECD average take was 34.5% of GDP. The tone of the fiscal debate in Washington might make it sound like we are already close to some maximum level of taxation, but in 2011 Canada’s tax burden was 31% of GDP, Germany’s 37%, and Sweden’s 44.5%. I’d say it is fair to conclude the United States has a little breathing room to increase taxes if necessary to protect spending on the safety net programs that we are so reluctant to give up.

Many would argue, and I would agree, that culture in the United States is different and that we are not willing to build and pay for the generous social safety nets that can bee seen in Western Europe and Canada. Nevertheless, we did in fact create Social Security, Medicare, Medicaid, the American Care Act, and more, so it’s not fair to paint the United States as some kind of every-man-for-himself frontier society. Further, I believe our attachment to these programs has been proven to be very strong given how hard it is to reform them, and is probably so strong that we are willing to pay more for them rather then drastically reduce the benefits provided.

Raising enough tax revenue will mean increasing taxes on everybody. Democrats will probably continue banging on about getting the wealthy to pay more and going after corporations, but at the end of the day middle and even low-income individuals will need to pay more as well. Fortunately, there are relatively healthy ways for the United States to do this: tax reform (in other words, the elimination of deductions) the creation of a value added tax, and increased taxes on things that currently are tax inadequately (carbon emissions in particular).


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