Thursday, November 16, 2017

Republicans won’t tell you about the cost of lower taxes.

Eduardo Porter is Considering the Cost of Lower Taxes in his Economic Scene column for the NY Times.

The United States of America is not a particularly high tax country. In fact, considered as a share of GDP, we are a low tax nation. Porter explains.

American tax policy must stand as one of the great mysteries of the global political economy.

In 1969 Neil Armstrong walked on the moon, Jimi Hendrix played “The Star-Spangled Banner” at Woodstock, and federal, state and local governments in the United States raised about the same in taxes, as a share of the economy, as the government of the average industrialized country: 26.6 percent of gross domestic product, against 27 percent among the nations in the Organization for Economic Cooperation and Development.

Nearly 50 years later, the tax picture has changed little in the United States. By 2015, the last year for which the O.E.C.D. has comparable data, the figure was 26.4 percent of G.D.P. But across the market democracies of the O.E.C.D., the share had climbed by an average of more than seven percentage points.

Citizens of many countries that were poorer and little taxed in the 1960s, like Spain and Japan, today pay a much larger share of their incomes in taxes than their American counterparts. In some rich countries like Denmark, where taxes were already high in the 1960s, taxpayers now contribute almost 20 percentage points of G.D.P. more to the public purse than Americans do.

Wagner’s Law, named for the 19th-century German economist Adolph Wagner, states that government spending as a share of the economy will increase as nations get richer and their citizens demand more and better public services. This may approximate public policy in other industrialized nations. In the United States, it fails.

Actually, Scriber thinks, Wagner’s law might very well hold true in America, but we don’t get the “more and better public services” that should come our way because we hate big gummint and that shows up in our tax policy.

You can’t always get what you want
But if you try sometimes you might find
You get what you need
- The Rolling Stones.

Or maybe not. Our low tax policy prevents government from delivering necessities. Porter continues.

Americans are paying dearly as a result, as their comparatively small government has proved incapable of providing an adequate safety net to protect those most vulnerable to globalization and technological change.

And whatever apologists for small government might argue, there is no credible evidence that countries with higher tax rates necessarily grow less.

Over the last couple of weeks, Republicans have offered legislation to cut taxes by $1.5 trillion over the next decade — more than half a percentage point of G.D.P. They assert a dire need to stimulate growth by encouraging corporations to invest in the United States.

But Lawrence H. Summers, a former economic adviser to President Barack Obama, has asserted that the plan may instead “retard growth” and burden the middle class. Bruce Bartlett, who helped conceive the 1986 tax overhaul under President Ronald Reagan but has become a critic of Republicans, characterized claims that corporate tax cuts would increase the income of the middle class as “complete nonsense.”

I have written about this country’s uniquely stingy tax policy before. Small government, I believe, has proved to be no match for its social ills, too puny to offer much resistance to rampant inequality, stubborn infant mortality or off-the-charts opioid addiction. American voters’ uniquely intense hostility toward trade can, in the same way, be traced back to the government’s ineffectiveness in mitigating trade’s disruptions.

Republicans seem to believe that the best prescription to address the nation’s ills is to slash some $50,000 from the taxes of people earning a million or more. As Isabel V. Sawhill and Eleanor Krause of the Brookings Institution note, the estate tax could generate $1 trillion over a decade just by raising the rate and cutting the exemptions to where they were in the 1970s. Raising the exemption on the estate tax to $11 million, as Republicans propose, will help only a narrow sliver of ultrarich Americans.

It is hard to conclude that the Republican proposal is about anything but that narrow sliver. If it succeeds, it will transform the United States from a low-tax country to a lower-tax one. And the mystery will persist: In cutting taxes as babies die and adults waste away in addiction, what do Americans mean by nation?

Think about it. If our country is willing to tolerate the mass shootings of school children so there is ready access to assault rifles, why not tolerate a low tax policy so that we can have higher rates of infant mortality and opioid addiction?

The founding fathers, so often cited by low-tax champions, promised to “promote the general Welfare.” Unfortunately, our collective aversion to taxes has rendered that promise empty.

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