Not everyone is crazy about the current tax reform proposals before Congress.
Some want more pro-growth measures. Others want it benefits geared more toward middle- and low-income people.
But a piece in the New York Times argues Congress should not pursue tax cuts at all. If anything, the piece calls for even higher taxes … because it’s time, we don’t pay enough and everyone else is doing it.
“In 1969, Neil Armstrong walked on the moon, Jimi Hendrix played ‘The Star Spangled Banner’ at Woodstock, and federal, state and local governments in the United States raised about the same in taxes, as a share of the economy, as the government of the average industrialized country: 26.6 percent on gross domestic product, against 27 percent among the nations in the Organization for Economic Cooperation and Development,” Eduardo Porter wrote in a piece called “Considering the Cost of Lower Taxes.”
“Nearly 50 years later, the tax picture has changed little in the United States. By 2015, the last year for which the OECD [Organization for Economic Co-operation and Development] has comparable data, the figure was 26.4 percent of GDP. But across the market democracies of the OECD, the share had climbed by an average of more than seven percentage points.”
Porter writes that countries such as Japan, Spain and Denmark now pay more in taxes as a share of GDP – in Denmark, 20 percent more.
It’s Wagner’s Law, Porter writes, and we don’t want to violate it. Wagner’s Law, named for a 19th-century German economist, says government spending will grow as a share of the economy as nations get richer and their citizens demand more and better public services. This may approximate public policy in other industrialized nations. In the United States, it fails.
A chart of growth in spending in various countries is labeled “Going against the grain,” as if failure to match the tax policy of European Union countries is a problem.
The United States has been wise not to attempt to match European or even some Asian countries’ levels of taxation. Europe is a good petri dish because some EU members have adopted pro-growth policies and have the prosperity to show for it.
Ireland lowered its top tax rate to 12.5 percent and went on to enjoy growth in the 5.7 percent range. Estonia enacted even more radical free-market reforms in the early 2000s, and its economy grew nearly 11 percent in 2006. The U.K. enacted Brexit because its people got tired of its economy – which has grown since the Margaret Thatcher reforms of the 1980s and ‘90s – supporting the rest of Europe.
Europe’s economy has been in constant decline for the last 15 years, and growth rates are less than 2 percent.
But Porter is not trying to design a tax system to promote economic vitality. He wants more money to finance even more government spending.
Porter is one of those people for whom $4 trillion in annual spending – about $650 billion more than we take in in taxes – is not enough.
“Americans are paying dearly as a result, as their comparatively small government has proved incapable of providing an adequate safety net to protect those most vulnerable to globalization and technological change.”
America’s top three entitlement programs – Medicare, Medicaid and Social Security – account for two-thirds of federal spending. Some 14 million people have been added to the public dole since President Obama took office. Americans now work into mid-May just to pay their taxes.
“It is hard to understand the deep reasons behind the American aversion to taxes and government,” Porter writes. “Is it vestigial expression of a rugged individualism born on the American frontier? Is it racial hostility – an unwillingness by whites to fund social programs that some believe unduly benefit minorities.”
Perhaps it is that Americans rely on each other to solve their problems. Perhaps they see building a prosperous society where people, through their own work, have the resources to not need government assistance.