U.S. Tax Burdens Aren’t Too High
President-elect George Bush, like his predecessor, has repeatedly insisted that our taxes are too high. If we’re going to make progress in reducing the federal deficit, he insists, we should cut expenditures, not raise taxes.
This assertion seems to go unchallenged in most quarters, taken either as economic fact or as political gospel. As one moderate Republican member of the House recently concurred: “The country is not lightly taxed. If you look at federal taxes as a percentage of gross national product, it’s just under 20%. . . . I guess most of us would like to see a real solid effort to see if we can’t go at the expenditure side first.
By what standard can we assert that the United States is not lightly taxed? Tax burdens are relative. There is no absolute standard by which we can meaningfully judge tax obligations. Instead, I would argue, we can judge their relative burden by two principal standards. By either standard, it would appear, the United States is not at all heavily taxed.
A first standard would measure tax burdens against the usefulness of what we get for those taxes--against the value of the government expenditures they help finance. If 20% of GNP goes to the federal government to support fat cat bureaucrats who do little more for their salaries than stamp forms and look important at never-ending meetings, we might reasonably feel that this tax burden is “too high.” But if 20% of GNP goes to the federal government to help support health care for the needy, highway construction, child care, and research and development, to choose only a few examples, we might think that the expenditures are worth it--that such a tax burden represents a fair price to pay for some valuable goods and services that the private sector neglects.
How do we judge? There is clearly some waste in government spending--just as there is more than a little waste in the corporations to which we pay the price of private-sector commodities. Judging by public opinion polls over the past several years, however, it would appear that a clear majority of U.S. citizens would be prepared to shoulder additional taxes if they helped finance critically needed programs such as better-quality, lower-cost health care. In 1985, for example, polls showed that huge majorities of the public thought the government was spending “too little,” rather than “too much,” on fighting crime, fighting drugs, health care, education, the environment, energy, public transportation and solving urban problems.
By this standard, then, it seems ludicrous to conclude unequivocally that our tax burden is too high. Were the government to focus on the right kinds of spending priorities, it appears that the public would be willing to pay for those priorities, even if taxes were raised.
The second main standard we might use to assess our relative tax burden would be to compare it with other advanced countries with which we compete internationally.
We can look specifically at tax revenues at all levels of government as a percentage of gross domestic product (GDP). Among the major advanced capitalist economies, the United States consistently shows significantly lower tax burdens than almost every other economy. In 1985, for example, federal, state, and local tax revenues absorbed 29.2% of GDP in the United States. By contrast, the total tax revenue share was 37.8% in West Germany, 38.1% in the United Kingdom, 34.7% in Italy, 45.6% in France and 50.5% in Sweden. Indeed, among the 20 most important economies, the United States ranked 19th, with only Japan showing a marginally lower tax revenue burden at 28%.
Are lower tax burdens a key to economic growth? Do we need to keep our relative tax burden low in order to revive our economy? Among the same 20 economies, there is no statistically significant correlation between relative tax revenue burden and rates of economic growth during the 1980s. Would someone possibly want to argue that the Japanese economy achieved an average annual growth rate from 1980 to 1985 more than 60% faster than the U.S. economy because its tax burden was 1/25th lower? If so, why did the West Germany economy grow more rapidly than the United States’ in 1985-86 when its tax revenue burden was more than a quarter higher?
There is little basis, in short, for the argument that U.S. tax burdens are “too high.” Why the continuing clamor to lower them?
There are many possible explanations. But one stands out in recent years. And that focuses on who dominates political discourse in this country.
It would clearly be politically unpopular to propose raising taxes equally on everyone, especially since so many millions of U.S. households are barely scraping by on their current after-tax incomes even at present tax rates. There is reasonable evidence, moreover, that tax hikes aimed at the wealthy and corporations would gain widespread support. In a 1985 poll, for example, 80% thought upper-income families and corporations were paying too little in taxes.
So why don’t politicians follow the politically promising path of pushing top-bracket tax rates back up to where they were in the late 1970s before the conservative supply-siders stormed into Washington with their slash-and-burn approach to taxation of the wealthy?
One important answer seems relatively obvious: Increasingly, it would appear, both political parties are competing for support among the same affluent sections of the electorate--those occupying roughly the top 20% of the income distribution. The Republican Party has always concentrated its attention on that minority. Increasingly, however, the Democrat Party has moved to compete on the same turf.
These changes in the terms of party competition, Washington Post writer Thomas Byrne Edsall concludes in his book “The New Politics of Inequality,” “have created a system of political decision-making in which fundamental issues--the distribution of the tax burden, the degree to which the government sanctions the accumulation of wealth . . . are resolved by an increasingly unrepresentative economic elite.” Do not bother to ask for whom the tax bells toll too heavily. Because it isn’t thee and me that matter.
