Monday, May 23, 2011

Equivalent Taxation

Tino plots the average national US government revenue, spending, and deficit by share of GDP since WWII.  The question is: Does the US have a spending problem or a revenue problem or both? What do we see?
First, this exercise shows us that Weigel is mistaken. Tax revenue during both Reagan terms was virtually identical with the Carter years, even though Reagan cut tax rates dramatically.

Second, revenues during the second Clinton term, the highest of the post-war periods, was
19.9%, only a little higher than the 19.0% level Paul Ryan has suggested (which liberals claim is far too little).

Lastly, President Obama has increased spending to levels never witnessed in American post-war history. … The overwhelming majority of Presidents Obama's budgeted deficit would remain even if he collected Clinton-era record revenue. …

The only reasonable conclusion that the United States primarily has a spending problem, not a revenue problem. It is the expansion of the government - some already carried out by Obama, some projected to occur - that is causing the long term structural deficit to grow beyond control, not a reduction of revenue caused by lowering the taxes on the rich.

If liberals want to argue that government spending is too low, and that we should increase it for reasons of social policy and raise taxes to pay for it, they should feel free to do so. But please do not claim that the long term deficit is primarily caused by taxes being too low relative to historical levels, because that is simply not true.
Taxes and timing (HT: Mankiw):
Malcolm has $30 billion, a passion for steaks, and a plan to buy 3 billion steaks for $10 each on his next birthday.
But an election is coming, pitting Lefty, from a blue state, against Righty, from a red state. Lefty hates the rich and wants to levy a 15 percent wealth tax. Righty loves the rich and wants to levy a 17.5 percent sales tax.
Everyone knows a wealth tax is progressive and a sales tax is regressive, but Malcolm is scratching his head.
“If Lefty wins, I’ll pay a $4.5 billion tax, which means 450 million fewer steaks. If Righty wins, the price of steaks will rise by 17.5 percent to $11.75, and my $30 billion will buy 450 million fewer steaks. Either way, I’m out 450 million steaks.”
Then Malcolm says, “What if I wait 10 years to have my Here’s-the-Beef Bash? I can double my money and postpone the sales tax. Righty is surely my candidate.”
But Malcolm reconsiders the math and shakes his head.
“If Lefty’s elected, I lose $4.5 billion immediately. I can turn my remaining $25.5 billion into $51 billion over 10 years and buy 5.1 billion steaks. If Righty wins, I can turn my $30 billion into $60 billion over the decade, but, given the sales tax, the $60 billion buys 5.1 billion steaks. It’s the identical story. And if the $10 base price of steak rises, I’ll be in even worse shape, but the same worse shape in both cases.
Moreover, if I forget my birthday and leave everything to my kids, they’ll also fare the same regardless. If Lefty wins, I’ll leave them less money, and if Righty wins, I’ll leave them more money, but with less purchasing power.

No comments:

Post a Comment