The total tax load on the American economy has recently been touted as the highest in the world. It is not!
The average national, state, and local tax burden among OECD (Organization for Economic Cooperation and Development) nations, the most developed economies, is about 34 percent of the gross domestic product. The U.S. tax burden is more like 26 percent. Several OECD countries have total tax burdens over 40 percent — among them, Denmark, France, Belgium, Austria, Italy, and Sweden.
The United States has typically collected federal taxes of about 19 percent of GDP and expenditures of 20 percent of GDP since World War II.
Current (as of 2016) federal taxes are about 17.7 percent of GDP and expenditures are about 21 percent of GDP. Revenues are about 1 percent low and expenditures 1 percent high compared to the last half-century.
The nominal corporate tax rate in the U.S. is 35 percent, but most companies pay under 20 percent by taking advantage of loopholes. The OECD average is 22 percent. On the average, OECD countries get about 3 percent of GDP in corporate taxes; the U.S. gets 2 percent.
We are finally exiting the Great Recession of 2007-17. The response of the U.S. government to the Great Recession was to combine additional federal spending with very low interest rates set by the Federal Reserve. That worked, but it increased the debt dramatically: We don’t need to reduce taxes, we need to increase them, and/or reduce expenditures.
However, I live on Social Security and get medical coverage through Medicare — so don’t reduce those expenditures. Reducing taxes is always popular, but not necessarily wise.
Increasing expenditures is popular among the recipients of government largesse, but that may not be wise either.
We need serious analyses, not ideological reaction.
During the Bush 43 Administration, one of the economic mantras was, “Reagan proved that deficits didn’t matter.” They did matter.
During the Reagan Administration, the Kennedy tax cut was seen as proving that “supply side” economics worked. It didn’t! The Kennedy administration was reducing taxes from the confiscatory rates of WW II and the Korean War: marginal rates as high as 95 percent!
We have a tendency to conflate apples, oranges and nuclear weapons. There is a best mix of tax rates, but it probably changes with time.
Most of us — at least those of us who had civics in high school — can remember being told that the Founding Fathers established the Constitution because the Confederation had no taxation power of its own and soldiers went unpaid.
James Madison, the principal author of the Constitution, said, “The power of taxing people and their property is essential to the very existence of government.”
Alexander Hamilton, in Federalist Paper No. 30, said, “Money is, with propriety, considered as the vital principle of the body politic.”
Madison and Hamilton agreed. We should pay attention to them.
David J. Whalen has a PhD in Public Policy and an MBA. He worked in industry for 35 years before becoming an academic. He currently teaches at Bakersfield College.