Yesterday Reuters business and economics columnist Felix Salmon posted the graph above, the chart of the day. His conclusion?
If you were structuring a tax code from scratch, it would look nothing like this. But the problem is that tax hikes seem to be politically impossible no matter which party is in power. And since any revamp of the tax code would involve tax hikes somewhere, I fear we’re fiscally doomed.
Or, shorter, we’re screwed.
Although Mr. Salmon’s column includes most of what needs to be said about the graph (you can click on it for a larger image), I think I can add a little. First, note that the total level of federal taxation has remained, except for during periods of booms and bubbles, persistently below 18%. The only times it has ventured above 20% was during the dot-com bubble.
Second, this is not a partisan issue. Federal taxation’s share of the economy has remained in the vicinity of 18% under Democratic administrations and Republican ones, with Republican congressional majorities and Democratic.
Third, the highest income earners are those best able to shield their income and wealth from taxation and the most motivated to do so. As the federal government has become increasingly dependent on these earners and as their share of income has grown, federal tax revenues have grown increasingly vulnerable. Even if we were to eliminate FICA max, the highest wage on which employment taxes are levied, the highest income earners would take less in wages and more in dividends or other forms of income. Were we to raise marginal income tax rates above a certain level, they would move or otherwise shield their income abroad. Americans have shown little willingness to tax wealth; a declining inheritance tax suggests the opposite if anything. It has long been my view that a prime objective of our ruling plutocrats, particularly those in the Senate, has been to prevent such a thing from occurring. Note, for example, that even the farthest left millionaires in the Senate have never proposed a wealth tax.
In a fiscally sound system a ceiling on the federal government’s share of GDP would also impose a ceiling on the federal government’s spending commitments but, alas, that isn’t the case. The burden of proof that a system in which federal revenues as a share of GDP rises markedly is a political possibility is on those who suggest that’s the case. Pointing to a few stray billionaires who take to the op-ed pages of the country’s newspapers to proclaim their willingness to pay higher taxes does not constitute such proof. Were these billionaires and many of the rest of the ultra-rich to pay taxes above what they’re compelled to by law, which there is no barrier to their doing, it would constitute proof. Their urges to others to pay higher taxes while they exploit the tax code to their own benefits is merely proof of hypocrisy not proof of intent.
Cultures are malleable but they are not infinitely malleable, they are not deformable equally in all dimensions, and the propensities of different cultures for the ways in which they will allow change to take place vary. Over the period of the last 70 years the American culture has changed enormously in many ways. We are more egalitarian than we were 70 years ago. We are far more eager to extend federal benefits and to accept them than we were 70 years ago. We are far more predisposed to go into debt than we were 70 years ago. All of that is completely consistent with America’s populist nationalist (Jacksonian) strain of political thought.
We are not willing to allow taxes to rise above a certain level and it looks like that level is below 20%. That’s consistent with Jacksonian thought, too.