It’s The Spending, Stupid
“High Tax Rates Won’t Slow Growth.” So argues an op-ed in today’s Wall Street Journal. Conclusion? Raise taxes on “the rich” in order to deal with our out-of-control government debt.
First off, I don’t buy that high taxes won’t slow economic growth. The authors reach that assessment by looking at dubious aggregates, and by assuming that politicians will spend money more productively than the individuals who earn it in the first place.
But that’s really beside the point. The fact is that our debt problem is not caused by low taxes but by government spending.
Our debt problem seems so hard to fix because Americans believe that most of this spending is right and necessary. If you believe, as most people do, that the government should regulate every business activity, tend to people’s every need, and centrally plan the economy, then you cannot limit government spending—and you cannot fix the debt problem.
But if you believe that the purpose of government is, as the Founders said, to protect individual rights and only to protect individual rights, then the solution to our debt problem is in principle quite easy: massively curtail the size of government. During the nineteenth century, when government was mostly limited to protecting individual rights, federal government spending never went above 3% of GDP (except during the Civil War). Today government has ballooned to more than ten times that amount.
The real debate is not about taxes, it’s not even about spending: it’s about the purpose of government.
5 Comments to “It’s The Spending, Stupid”
Ten times 9% is 90%, are you sure about that number?
I think government spending during the nineteen century was around 2-3%.
I mixed up two numbers. Total spending was 9% of GDP, but federal spending was less than 3%. When I said “10 times” I was thinking of federal spending only. Thanks for catching my error, and sorry for the confusion.
Because of the changing value of the dollar, and of the growth of the population (and of the GDP), wouldn’t it be more informative to chart the spending as a percent of GDP than to do it in dollar figures? The result that I got from charting that (on the same site your chart came from) still has us higher than ever today, but it shows that it really spiked during the World Wars, and that there have been a lot more ups and downs within the context of an overall upward trend. I’m not sure that this is the best measure either though. Perhaps the best figure would be spending in inflation-adjusted dollars divided by population. For obvious reasons the spending has to grow when the population does, but it doesn’t need to (and should not) grow just because the people are richer, so spending could remain at a constant percent of GDP for a while, even as government is growing insidiously.
It’s a fair point, and I actually considered using the % of GDP chart. My thinking at the time was that I was just trying to convey the general trend, which isn’t essentially different using other reasonable measures. But upon reflection it’s probably true that another measure would have been more accurate.
If you want to see the rate of growth, it’s better to go with the log (vs. linear) chart: http://www.usgovernmentspending.com/spending_chart_1900_2017USb_13s1lo011lcn_F0t