Tuesday, May 31, 2011

How low should taxes go?

A few months ago, Ben and I interviewed William Voegeli, author of "Never Enough: America's Limitless Welfare State." As you might guess, Voegeli's thesis is that Democrats will never stop making more demands for more social welfare programs, and that they need to come up with a limiting principle in order to get Republican buy-in to support any kind of welfare state--which, despite conservative rhetoric, has the support of voters.

I thought of Voegeli when reading Bruce Bartlett today:
Federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.

The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan’s administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.

In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.
I've been trying to grasp at this question for some time, but seeing it through the Voegeli lens has helped me frame it properly. It's well-established that in good times and bad, Republicans call for lower taxes. Always. So I guess my question for my conservative friends is this: How low is low enough?

I presume that most of my conservative/Republican friends believe that the state should exist and has some functions to perform. (I'm excluding my anarcho-libertarian friends from the conversation for the moment.) And I guess their first response would be: "The minimum it takes to support those minimal tasks and not a cent more." But that doesn't really tell us anything, and it keeps things sufficiently vague that Republicans can make the same pitch, generation after generation. What I want to know is: According to conservatives, what's an appropriate level of taxation to sustain government without unduly oppressing citizens? Is it lower than 14.8 percent of GDP? If so, how much lower? Can we get a number?

Somebody will provide a number, I hope. But I'm guessing for most Republicans, the answer is always and will ever be: "Just a little lower."


Monkey RobbL said...

You already know my answer, of course: All taxation is theft, so no income tax is acceptable.

But I also want to question your choice of metrics. Federal income tax revenues are not a complete measure of the tax burden of the average American. State and local income tax, consumption taxes, property taxes, fees - not to mention inflation and the cost of dilution of the money supply - all of these dramatically affect ALL Americans, nit just the rich. In fact, I would argue that many of these are increasingly regressive. In Phoenix, for example, our sales tax is now almost 10%. In another example, I have a friend whose income is so low he pays no income tax, but he has to pay more than his annual income in property taxes on a piece of land in the middle of the desert with no city/county services and no structure on the property.

In short, don't ask how much the Federal government's take is, measure the burden on the citizen to simply "get by."

Rick Henderson said...

Also, Joel, Bartlett is either being obtuse or disingenuous. Federal tax revenues may be 14.8% of GDP, but federal spending this year is more than 24% of GDP.


With a deficit like that, the level of taxation is somewhat less relevant.

To paraphrase Milton Friedman, I'd rather have a $1 trillion federal budget with a $500 billion deficit than $2 trillion budget that's balanced.

emawkc said...

Joel, you should be trying to define what government should "do", how much it will cost and only then raising taxes to cover that cost.

This is where the true distinction should be between "Democrats" and "Republicans"… but we all know that both parties' answer to that question is "Government should do whatever it needs to do do get me elected."

namefromthepast said...

The conservative seeks to tax/steal the least amount possible for the government to function, the liberal seeks to tax/steal the most and still have the private sector produce.