Free Markets, Free People

What’s Our Future? Bigger Government And Higher Taxes

At least that’s what Robert Samuelson sees for us. I can’t really dispute his numbers either:

For the past half-century, federal spending has averaged about 20 percent of GDP, federal taxes about 18 percent of GDP and the budget deficit 2 percent of GDP. The CBO’s projection for 2020 — which assumes the economy has returned to “full employment” — puts spending at 26 percent of GDP, taxes at a bit less than 19 percent of GDP and a deficit above 7 percent of GDP. Future spending and deficit figures continue to grow.

What this means is that balancing the budget in 2020 would require a tax increase of almost 50 percent from the last half-century’s average. Remember, that average was 18 percent of GDP. To get from there to 26 percent of GDP (spending in 2020) would require an additional 8 percentage points. In today’s dollars, that would be about $1.1 trillion, a 44 percent annual tax increase. Even these figures may be optimistic, because CBO’s projections for defense and “nondefense discretionary” spending may be unrealistically low. This last category covers much of what government does: environmental regulation, aid to education, highway construction, law enforcement, homeland security.

Now, this should come as no surprise, really, to anyone with a passing knowledge of accounting. When you increase spending without increasing revenue, you end up with a deficit. And what we’ve seen the government doing for decades is exactly that.  Now it’s in the midst of piling up massive deficits and planning huge increases in government.

And it’s not all the politicians fault. After all the average American keeps returning the same fiscally irresponsible people to the same place where they can continue doing what they’ve been doing for decades – spending us into bankruptcy.

Because, as Samuelson notes, Americans like the benefits even if they don’t like the taxes. So the formula has been a little different for each party but the result has been precisely the same:

Republicans want to cut taxes without cutting spending. Democrats want to increase spending without increasing taxes, except on the rich. The differences between the parties are shades of gray. Hardly anyone asks the hard questions of who doesn’t need benefits, which programs are expendable and what taxes might cover remaining deficits.

In fact, much harder questions are routinely ignored, such as “why is government getting into _________ at all?” To me that is the key question that is never asked. Name your program and tell me when anyone asks why government is involving themselves in such things?

It all comes back to the fundamental question which, over the centuries, has seen the answer change radically – “What is the basic function of legitimate government?”

Few are going to be able to argue successfully that the answer in 1781 was the same as it is today, are they? And you don’t really have to be an economist to understand what this direction we seem to be intent upon taking means for our future.  It should also be clear by now that those who’ve have gotten us into this mess have little incentive to change their ways and certainly no stomach for the sort of work it would entail:

There is little appetite for any of this, and so we face the consequences of much bigger government. Certainly higher taxes for future Americans. Probably a less robust economy. The CBO notes that elevated deficits would penalize saving, investment and income, while unprecedented tax burdens could “slow the growth of the economy, making the [government's] spending burden harder to bear.” To such warnings, Americans’ collective response is: Go away.

Enjoy.

You can go back to sleep now.

~McQ

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5 Responses to What’s Our Future? Bigger Government And Higher Taxes

  • Few are going to be able to argue successfully that the answer in 1781 was the same as it is today, are they?
    None may be able to argue it successfully.
    But I’d say it’s largely true.  Where they were wrong, amendments have tended to mend.
     
    Yours, TDP, ml, msl, &pfpp
     
     
     

  • Well, I just wonder how much longer the Fed and the Treasury will be able to continue this without having to monetize a lot of that debt.
     
    And then inflation will take off.  They have done a pretty good job so far of holding it back, but something has got to give.

  • The people in Washington do not understand economics at all.  What they understand is that they have 320 million Americans who can pay taxes to support bills that justs gives away money to gather votes for their party.   We now have over half of the working population not paying incomes taxes and  those who earn above $250,000 supporting the country.  Since we have now gone into economic meltdown the current answer is to throw more money at it.  So we are throwing more money at it directed to the people who supported the current administration to keep the votes coming their way.  Create jobs was the cry, well no jobs have been created as most of the money that went out the door has gone into unemployment benefits, food stamps (which went up 31%) and state governments paying their employee salaries.

    It is truly a complete dumping of the American Dream and going on the socialist path of the government owning everything and deciding who gets what.  Everyone had better join the Democratic Party or be left without food and shelter seems to be the message.

  • MCQ – “[A]s Samuelson notes, Americans like the benefits even if they don’t like the taxes.”

    The funny thing is that (IMO), Americans don’t want the benefits FOR THEMSELVES: they want them for anonymous OTHER PEOPLE who are suffering from some lack of food / housing / medical care / college education / HDTV / etc.

    SAMUELSON – “[S]o we face the consequences of much bigger government. Certainly higher taxes for future Americans. Probably a less robust economy. The CBO notes that elevated deficits would penalize saving, investment and income, while unprecedented tax burdens could ‘slow the growth of the economy, making the [government's] spending burden harder to bear.’ To such warnings, Americans’ collective response is: Go away.”

    It won’t be “go away” forever. Eventually, we’ll have another replay of the period beginning in the ’70s and ending in the ’90s where Americans grew increasingly sick of high taxes going to subsidize deadbeats. The problem is that the dems’ game plan seems to be to get a majority of Americans (somehow) on the dole: once that happens, we’ll NEVER be rid of the programs. We’re seeing this play out in California, which has bankrupted itself by trying to give away something for everybody and now can neither pay for it all nor cut funding to enough of the programs to balance their budget without angering significantly large blocks of voters.

    The difference between 1781 and today is that, in the intervening two centuries, Americans discovered that they CAN vote themselves a living. They forgot that somebody has to pay for it.

    • I’m reminded of two quotes from Alexis de Tocqueville -
      “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money. ”
      Alexis de Tocqueville
      “Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude. ”
      Alexis de Tocqueville