“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.