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Reagan Won The Tax Debate. Now What?

Ronald Reagan won the tax fight. The debate now centers on whether to continue cutting taxes or slightly reverse the trend.

NYT (“Complaints Aside, Most Face Lower Tax Burden Than in 1980“):

Alan Hicks divides long days between the insurance business he started in the late 1970s and the barbecue restaurant he opened with his sons three years ago. He earned more than $250,000 last year and said taxes took more than 40 percent. What’s worse, in his view, is that others — the wealthy, hiding in loopholes; the poor, living on government benefits — are not paying their fair share.

“It feels like the harder we work, the more they take from us,” said Mr. Hicks, 55, as he waited for a meat truck one recent afternoon. “And it seems like there’s an awful lot of people in the United States who don’t pay any taxes.”

These are common sentiments in the eastern suburbs of St. Louis, a region of fading factory towns fringed by new subdivisions. Here, as across the country, people like Mr. Hicks are pained by the conviction that they are paying ever more to finance the expansion of government.

But in fact, most Americans in 2010 paid far less in total taxes — federal, state and local — than they would have paid 30 years ago. According to an analysis by The New York Times, the combination of all income taxes, sales taxes and property taxes took a smaller share of their income than it took from households with the same inflation-adjusted income in 1980.

Households earning more than $200,000 benefited from the largest percentage declines in total taxation as a share of income. Middle-income households benefited, too. More than 85 percent of households with earnings above $25,000 paid less in total taxes than comparable households in 1980.

Lower-income households, however, saved little or nothing. Many pay no federal income taxes, but they do pay a range of other levies, like federal payroll taxes, state sales taxes and local property taxes. Only about half of taxpaying households with incomes below $25,000 paid less in 2010.

The tax cuts predominantly benefit those who pay taxes is a truism, not a revelation. But it’s true that most of the tax cuts have been on income, dividends, inheritances and other revenue streams that tend to benefit the well off while sales and other consumption taxes, which disproportionately hurt the poor, have remained static or even increased.

The uneven decline is a result of two trends. Congress cut federal taxation at every income level over the last 30 years. State and local taxes, meanwhile, increased for most Americans. Those taxes generally take a larger share of income from those who make less, so the increases offset more and more of the federal savings at lower levels of income.

In a half-dozen states, including Connecticut, Florida and New Jersey, the increases were large enough to offset the federal savings for most households, not just the poorer ones.

Essentially, it’s become impossible to increase revenue from the taxation of income at any level of government. And more of the burden has shifted to the states and localities. Also, since those levels of government are forced to pay as they go because of balanced budget requirements, it means sales tax increases or bond issuances.

Public debate over taxes has typically focused on the federal income tax, but that now accounts for less than a third of the total tax revenues collected by federal, state and local governments. To analyze the total burden, The Times created a model, in consultation with experts, which estimated total tax bills for each taxpayer in each year from 1980, when the election of President Ronald Reagan opened an era of tax cutting, up to 2010, the most recent year for which relevant data is available.

The analysis shows that the overall burden of taxation declined as a share of income in the 1980s, rose to a new peak in the 1990s and fell again in the 2000s. Tax rates at most income levels were lower in 2010 than at any point during the 1980s.

Governments still collected the same share of total income in 2010 as in 1980 — 31 cents from every dollar — because people with higher incomes pay taxes at higher rates, and household incomes rose over the last three decades, particularly at the top.

There are now many more millionaires, in other words, paying more than they did in 1980, but they are paying less than they would have if tax laws had remained unchanged. And while they still pay a larger share of income in taxes than the rest of the population, the difference has narrowed significantly.

The debate over what to do about all this, even at the expert level, seems like a broken record.

Jared Bernstein, who served as chief economist to Vice President Joseph R. Biden Jr., said the Times analysis highlighted the need to raise taxes on the affluent and cut taxes for the poor. He cautioned that the middle class most likely would need to pay more, too.

“When you look at these numbers, you understand why we’re not collecting the revenue we need to support the spending we want,” said Mr. Bernstein, a senior fellow at the Center on Budget and Policy Priorities, a liberal research group. “We’ve really gutted the system.”

But Douglas Holtz-Eakin, a prominent conservative economist, said the changes in taxation over the last three decades reflected a conscious and successful strategy to encourage economic growth that should be reinforced, not reversed.

Mr. Holtz-Eakin, a former director of the Congressional Budget Office who is the president of the American Action Forum, said government should reduce deficits primarily through spending cuts, particularly to Medicare and Medicaid, the health programs that are the largest source of projected increases in the federal debt.

“We can’t grow our way out of it, and we can’t tax our way out of it,” he said of the government’s fiscal predicament. “We have a spending problem, period.”

For the most part, I think the solution is in fact to grow our way out of it. If the economy starts booming again, revenues will poor in and several expenses will go down considerably. The glaring exception, of course, is the continuing explosion of health care costs. ObamaCare was probably the last chance we’re going to get for a generation to fix that and we failed; indeed, it likely exacerbated the overall problem somewhat at a fiscal level. We’ll probably get some modest Medicaid savings as a result of whatever deal gets struck to address the so-called Fiscal Cliff; it’s unlikely to address fundamental problems, however.

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About James Joyner
James Joyner is the publisher of Outside the Beltway, an associate professor of security studies at the Marine Corps Command and Staff College, and a nonresident senior fellow at the Atlantic Council. He's a former Army officer and Desert Storm vet. He has a PhD in political science from The University of Alabama. Views expressed here are his own. Follow James on Twitter.

Comments

  1. Jenos Idanian #13 says:

    “It feels like the harder we work, the more they take from us,” said Mr. Hicks, 55, as he waited for a meat truck one recent afternoon. “And it seems like there’s an awful lot of people in the United States who don’t pay any taxes.”
    …..
    But in fact, most Americans in 2010 paid far less in total taxes — federal, state and local — than they would have paid 30 years ago.

    These statements are not contradictory in the least. In fact, the latter reinforces the former.

    Like or Dislike: Thumb up 2 Thumb down 5

  2. john personna says:

    I suspect that many will trip on the ambiguity of your first sentence .. I for one don’t believe Mr. Reagan thought he accomplished what he set out to do, budget-wise.

    The multimedia sidebar, How the Tax Burden Has Changed, with that NYT story is very important.

    The tax cuts predominantly benefit those who pay taxes is a truism, not a revelation. But it’s true that most of the tax cuts have been on income, dividends, inheritances and other revenue streams that tend to benefit the well off while sales and other consumption taxes, which disproportionately hurt the poor, have remained static or even increased.

    That’s pretty much what the multimedia shows. The most interesting thing to me though was the effect on the poor. Sure, Federal tax has shifted to a supplement for people earning less than $25K, but at the same time payroll, state, and other taxes have increased … pretty much for a wash:

    (-3.6 – 2.3) + (7.9 – 5.3) + (14.0 – 9.8) = 0.9

    They don’t teach you that in school.

    Ultimately though, they have a bottom line:

    But the distribution of the tax burden has become less progressive.

    Do you really think we should just attempt to grow out of a less progressive tax system?

    Like or Dislike: Thumb up 12 Thumb down 0

  3. john personna says:

    @Jenos Idanian #13:

    I see what you are suggesting, unfortunately there is data.

    “The tax burden has become less progressive” is a pretty basic concept.

    Like or Dislike: Thumb up 7 Thumb down 0

  4. James Joyner says:

    @john personna: We have long ago reversed the presumption of the Founders, in that most of us now think of “government” as that thing that happens in Washington and are largely clueless about the much-more-important-in-our-everyday-lives state and local government. The tax debate is almost entirely about federal taxes and, since there are 50 states and thousands of localities, there’s no way to have a national debate about the latter, anyway. But the consequence of all that is that most people don’t realize how much state and local taxes have gone up.

    I mean that we can grow our way out of much of the fiscal crisis. That’s what happened in the 1990s and there’s no reason it can’t happen again. The reason things have gotten so much worse under Obama isn’t that he’s particularly awful but that revenues have gone way down and expenses have gone way up because of the Great Recession, the financial crisis, and related woes.

    Like or Dislike: Thumb up 4 Thumb down 0

  5. Tano says:

    I am not quite sure what you mean by Reagan winning the tax fight. Yes, he succeeded in making tax cutting the bedrock position for the Republican party for a generation. But he did so while tripling the national debt and establishing the tradition by which Republicans are deeply concerned about deficits and debt only when Democrats are in power (and vice versa). There seems to be a growing sentiment that this is an unsustainable attitude.

    So I don’t think this is a Reagan “victory”, but perhaps rather a Reagan problem that we are now, finally, being forced to find a solution to.

    Highly-rated. Helpful or Unhelpful: Thumb up 18 Thumb down 0

  6. superdestroyer says:

    Government almost never grow their way out of deficits since the politicians refuse to raise taxes during a boom and politicians will find ways to justify additional spending during the boom.

    The term :ratchet effect: was invented to describe how spending always goes up because new programs are created during the boom times and that taxes raised during the down cycle just creates more money to be spent during the next cycle.

    I think the long term lesson is that Reagan lost because Americans have developed a taste for high levels of government spending. The only argument now is over how to pay for the high levels of government services and who does the paying.

    Like or Dislike: Thumb up 4 Thumb down 0

  7. john personna says:

    But the consequence of all that is that most people don’t realize how much state and local taxes have gone up.

    For median earners state and local tax rate went from 7.6% to 9.2%. Over 30 years. I’d actually call that stability over revolution. Or … creep.

    I mean that we can grow our way out of much of the fiscal crisis. That’s what happened in the 1990s and there’s no reason it can’t happen again. The reason things have gotten so much worse under Obama isn’t that he’s particularly awful but that revenues have gone way down and expenses have gone way up because of the Great Recession, the financial crisis, and related woes.

    This is the crux. I don’t believe our tax rate schedule can match our spending with any reasonable, nor even reasonably optimistic, growth rate.

    We broke our tax system. We can’t shrug that off.

    Like or Dislike: Thumb up 1 Thumb down 0

  8. superdestroyer says:

    @john personna:

    How many progressives have complained that New Jersey pays more federal taxes than it gets back in federal spending. It is mainly due to the progressive nature of taxes in the U.S. If you want New Jersey to only pay federal taxes at the level that it receives, then poor people are going to have to pay a much higher level of taxes and taxes are going to have to be much less progressive.

    Progressives are going to have to decide what is important: That Alabama receives more than it pay in or that taxes need to be more progressive. You cannot have both.

    Taxes can only stay progressive for a limited time before the wealthy and affluent put in the time and effort into planning how to avoid taxes.

    Like or Dislike: Thumb up 0 Thumb down 2

  9. Dave Schuler says:

    Historically, the percentage of GDP that the federal government has been able to extract from the country has been limited to about 20%. It’s a rule-of-thumb that goes back to the very beginnings ot the country and has been remarkably stable during the postwar period. The composition of the revenue has changed but the percentage has had an upper limit of about 20%.

    There are several possible policy alternatives. We could assume that of course we can extract more than 20% from the economy against the evidence. We could limit what we spend to revenues. Or we could adjust both revenues and expenditures to be more efficient from an economic standpoint.

    In the near term, over the period of the next half dozen years, IMO slower growth is more likely than faster growth. Recoveries don’t go on indefinitely and the present phlegmatic recovery has struggled on for more than 40 months. To me that suggests that the likelihood of growing out of our problems, at least in the near term, is quite unlikely.

    Like or Dislike: Thumb up 5 Thumb down 0

  10. john personna says:

    (I really hope there is a supercomputer somewhere with anonymized tax returns going back 10 or 20 years. I hope that technicians in our government are running alternate tax plans against that database, to test theories of tax and revenue. I say that because, at the top level, it all looks like idiocy, with politicians asserting random BS as a change (or non-change) that will just work.)

    Like or Dislike: Thumb up 1 Thumb down 0

  11. Dave Schuler says:

    I might add that Reagan might have won the tax debate but, never a detail man, he did it by losing the budget debate rather catastrophically.

    Like or Dislike: Thumb up 6 Thumb down 0

  12. john personna says:

    @Dave Schuler:

    Historically, the percentage of GDP that the federal government has been able to extract from the country has been limited to about 20%.

    I’ve always felt that this was a bit too simplified, and then treated with too much superstition.

    Good thing the Times data shoots the crap out of it.

    The number of high-income households, and their average income, has increased rapidly. Even in the wake of the recession, more than a million taxpayers made at least $350,000 in 2010, and that group accounted for 15 percent of the nation’s income. As a result, while those households paid a smaller share of their income in taxes than they did in 1980, they paid a larger share of the total tax bill.

    Like or Dislike: Thumb up 1 Thumb down 0

  13. Dave Schuler says:

    @john personna:

    Relevancy of quote to assertion?

    Like or Dislike: Thumb up 0 Thumb down 0

  14. john personna says:

    @superdestroyer:

    1) The way the conversation really goes is that conservatives talk about “takers,” and then progressives answer, “then why do Red States take?” Rinse, wash, repeat. I guess it’s kind of boring, but the “taker” argument seems to be getting knocked down, but by by.

    2) The data actually show that our historic (progressive) taxes did not hurt employment or growth. The whole “jobs creators” thing was a just-so story.

    Like or Dislike: Thumb up 3 Thumb down 0

  15. john personna says:

    @Dave Schuler:

    That graph does not show a fixed 20% revenue, nor stability on any particular level.

    The 20% just-so story is a conservative meme and about as reliable as the rest.

    Like or Dislike: Thumb up 2 Thumb down 0

  16. john personna says:

    (The first chart on that page was “Share of yearly income paid in federal, state and local taxes, by income bracket.” You can’t have every single segment pay lower tax and then assert a constant.)

    Like or Dislike: Thumb up 0 Thumb down 0

  17. Mikey says:

    @john personna: I think the 20% figure is accurate, but I’m not sure it’s particularly relevant–yeah, there’s an “average” over time, but the percentage fluctuates greatly year-to-year. There doesn’t seem to be any kind of return to the “average” for any length of time.

    However, the percentage does seem to stick pretty well between 15%-20% since 1950 (why start there? I think it’s to keep World War II from influencing the number–it was a bit of an outlier…).

    Tax Revenue as a Fraction of GDP

    One thing stood out to me–take a look at the second graph, the item “Social Insurance” (i. e. payroll taxes). While other components of tax collections fluctuate significantly along the time axis, Social Insurance’s line is far smoother. And Social Insurance’s rise closely mirrors Corporate Tax’s decline.

    Like or Dislike: Thumb up 1 Thumb down 0

  18. superdestroyer says:

    @john personna:

    The first graph I found on federal spending as percentage of GDP shows that federal spending stays within a fairly narrow band.

    However, if look at the longer term trend, government spending continues to go up. The longer term question is how high can it go and how long can it be sustained.

    Like or Dislike: Thumb up 0 Thumb down 0

  19. john personna says:

    @Mikey:

    I don’t think that chart shows so much stability. It ranges from 12 percent to 20 over 50 years. Think about that. The growth from 12 to 20 was a 67% expansion. That was huge (and of course we only “kissed” 20% once in that history).

    On the shift in tax types, I think “misc” is largely tariff. The reduction in corporate and tariff taxes of course mean a shift in proportion to “individual” taxes.

    Like or Dislike: Thumb up 1 Thumb down 0

  20. Mikey says:

    @john personna:

    I don’t think that chart shows so much stability. It ranges from 12 percent to 20 over 50 years.

    That was the point I was trying to make, apparently too clumsily–there’s enough fluctuation over time that the “average” isn’t really relevant.

    Like or Dislike: Thumb up 0 Thumb down 0

  21. john personna says:

    @superdestroyer:

    The first chart? Funny, another chart that shows a 30 percent variation (19-25) treated as stability.

    Looking for the story that goes with the second …

    Like or Dislike: Thumb up 0 Thumb down 0

  22. superdestroyer says:

    @john personna:

    You could argue that goverment GDP spending is 22% plus or minus about 10%. That is about as narrow as anything that government ever does. What is odd is how many progressives would love federal spending to exceed 25% of GDP (think single payer healthcare would easily push the number above 25%. Think about what the percentage would be with guaranteed income.

    Like or Dislike: Thumb up 0 Thumb down 0

  23. john personna says:

    @Mikey:

    Sorry, just tripping on 20%.

    @superdestroyer:

    The second chart is Federal outlays, which does show a lot of historic growth. Yes. Given a life expectancy of 78, US citizens have lived under spending levels ranging from 7% of GDP to 41%.

    Pretty huge variation.

    I guess we could get into our subject experience, say 1970 to 2010? And a range of spending from 15 to 25 percent of GDP?

    Still pretty big.

    It seems we have a lot of options to define our own future, eh?

    Like or Dislike: Thumb up 0 Thumb down 0

  24. Andre Kenji says:

    @john personna: More or less. Both David Stockman and Bruce Bartlett said that the main objective of the Kemp-Roth Act of 1981 was to cut the Top Marginal taxes, not taxes overall, because they were hurting investment and cutting taxes only on high earners would be politically unpalatable. That´s why many of these tax cuts would be rescinded a year later.

    Sure, one can argue that the mantra of “Job Creators” is ridiculous and that rich people are not gods. One can even argue that the Tax preferences for Capital Gains fueled the Stock Markets Bubble and destroyed savings. On the other hand, the high top marginal rates of the past were hardly any kind of blessing, and obviously, many of the things that allowed the United States to grow at very high rates at the time does not exist anymore.

    Like or Dislike: Thumb up 0 Thumb down 0

  25. Ben Wolf says:

    The government’s deficits equal the non-government sector’s surpluses, to the penny.

    http://econintersect.com/wordpress/wp-content/uploads/2012/08/private-sector-balance-vs-public-sector-balance.jpg

    Why does this happen? Because the aggregate spending and saving decision of the non-government sector drive the government into surplus or deficit.. It is not possible to avoid deficits permanently or even most of the time in a capitalist economy, because households and firms want to accumulate financial wealth.

    What is odd is how many progressives would love federal spending to exceed 25% of GDP (think single payer healthcare would easily push the number above 25%.

    Single payer costs half as much as we currently spends, and government spending doesn’t consume GDP, it adds to GDP. If we ceased running deficits immediately the economy would shrink by roughly $1.5 trillion.

    Like or Dislike: Thumb up 5 Thumb down 0

  26. wr says:

    @Tano: “Republicans are deeply concerned about deficits and debt only when Democrats are in power (and vice versa)”

    Vice versa? Seriously? I know there’s a fetish for “both sides do it,” but when Clinton was in office, he dedicated himself to bringing down the Reagan/Bush deficit to a point where we were looking at balanced budgets — at which point Republicans started going crazy, claiming that a surplus would doom our economy. Obama has spent huge chunks of his time in office searching for his idiot “grand bargain,” which would directly hurt his constituency in the name of lowering the debt.

    So please, spare me the “vice versa.” It’s simply not true.

    Like or Dislike: Thumb up 8 Thumb down 0

  27. john personna says:

    @Andre Kenji:

    I think the American left has very meager goals. I mean, consider it even in terms of Mr. Manfield’s American vs European dichotomy in the other thread.

    Twenty or thirty years ago the left did have affinity with a Europe which itself was left of where it is today.

    Now the left wants a partial roll back to previous patterns of modern American government. They don’t ask for a full roll back to the strategies of Johnson. They pick Mr. Reagan as their reference.

    “Give us the tax rates of Reagan” they plead.

    Like or Dislike: Thumb up 1 Thumb down 0

  28. Brummagem Joe says:

    For some reason a comment of mine has been blocked …..nothing naughty….and the link to admin doesn’t work????

    Like or Dislike: Thumb up 0 Thumb down 0

  29. Andre Kenji says:

    @john personna: I´m a pessimistic. I think that both Models(The European Model of unlimited Social Spending and the American Model of unlimited Consumer Spending) are broke.

    Like or Dislike: Thumb up 0 Thumb down 0

  30. Brummagem Joe says:

    @Brummagem Joe:

    Apparently it doesn’t like the link the OMB historical stats

    Like or Dislike: Thumb up 0 Thumb down 0

  31. Brummagem Joe says:

    @Andre Kenji:

    The world is coming to an end LOL

    Like or Dislike: Thumb up 0 Thumb down 0

  32. john personna says:

    @Andre Kenji:

    Don’t people on the right do a funny selection and substitution?

    There are actually many happy, rich, and productive European countries. But oops, we should think of the “worst of the moment” and consider it our alternative.

    I mean when I was a kid we were warned of the British disease, and then Italy, …, lately Greece or Spain. That it has to be a shell game, and never centered on prosperous European models is a tell.

    Like or Dislike: Thumb up 4 Thumb down 0

  33. Brummagem Joe says:

    @Mikey:

    Averages are relevant but it depends on the periods on which they are based. In fact post great society legislation in the mid sixties both outlays and revenue moved in a fairly narrow band for most of the time. The two notable exceptions were during and after the presidencies of Reagan and Bush 2…..I wonder why?

    Like or Dislike: Thumb up 0 Thumb down 0

  34. Let's Be Free says:
    But it’s true that most of the tax cuts have been on income, dividends, inheritances and other revenue streams that tend to benefit the well off.

    I love the deception and misdirection. Other revenue streams that tend to benefit the well off is earned income, and, if the New York Times is to be believed it is all income earners $25K and up. Income and payroll tax cuts, in reality, have overwhelmingly benefited the middle class (how else do you explain the trillions of dollars of revenue difference between the Obama tax on the top 2 percent and what would accrue if the Bush tax cuts were allowed to expire?). Oh, I’m sorry, I’m talking facts and fiscal and economic reality instead of self-serving philosphical platitudes which revolve around making every problem, every challenge and every cost someone elses problem.. Sorry to instrude.

    Like or Dislike: Thumb up 1 Thumb down 3

  35. Ben Wolf says:

    @Let’s Be Free:

    Income and payroll tax cuts, in reality, have overwhelmingly benefited the middle class (how else do you explain the trillions of dollars of revenue difference between the Obama tax on the top 2 percent and what would accrue if the Bush tax cuts were allowed to expire?).

    Don’t be silly. The difference is there are a lot more people in the 98% than the 2%. On an individual level the wealthy have benefitted to a much greater degree, which is why you pulled he bait-and-switch of comparing a hundred million people to a few hundred thousand.

    No one here is fooled.

    Like or Dislike: Thumb up 7 Thumb down 0

  36. Brummagem Joe says:

    @Let’s Be Free:

    What was Bubba said…..Republicans don’t understand arithemetic…….LOL…..need I say more…….Boy the US education system has a lot to answer for….I’m still laughing

    Like or Dislike: Thumb up 2 Thumb down 0

  37. Joe R. says:

    @Ben Wolf:

    Single payer costs half as much as we currently spends, and government spending doesn’t consume GDP, it adds to GDP.

    The “G” term is an additive term in the basic GDP calculation, yes, but this assumes it has no detrimental effect on the C or I terms. Money taken as taxes is not spent or invested by the private sector.

    If maximized GDP is your goal, and you believe that government spending can only increase GDP, then go ahead and make the next logical suggestion. Otherwise, stop claiming that your goal is to increase GDP, or stop claiming that government spending can only increase GDP.

    Like or Dislike: Thumb up 1 Thumb down 0

  38. Ben Wolf says:

    @Joe R.:

    Otherwise, stop claiming that your goal is to increase GDP, or stop claiming that government spending can only increase GDP.

    I haven’t claimed either of these, so stop lying.

    Like or Dislike: Thumb up 1 Thumb down 0

  39. Brummagem Joe says:

    @Joe R.:

    Total nonsense. Taxes are simply recycled by govt most of whose expenditures utltimately end up back in the private sector. To take but two obvious examples where do you think most of Medicare/Medicaid and defense expenditures end up?

    Like or Dislike: Thumb up 1 Thumb down 0

  40. Ben Wolf says:

    @Joe R.:

    The “G” term is an additive term in the basic GDP calculation, yes, but this assumes it has no detrimental effect on the C or I terms.

    You’re right, it has no detrimental effect. If government increases its spending by $100 billion GDP will rise by more than $100 billion thanks to the reality that each dollar is turned over a number of times before being lost to financial leakage.

    Like or Dislike: Thumb up 0 Thumb down 0

  41. john personna says:

    @Joe R.:

    I don’t think Ben is the one guilty of simplification, especially given that “austerity” is the world playing across the world stage. The common argument has been that spending cuts win, even as they subtract from the headline number.

    As a note, Government spending as a percentage of GDP by country.

    I don’t see a uniform relation between healthy countries and spending. Sweden and Denmark are healthy countries that spend a lot. Hmm … who would you actually choose on that page as a country which is healthy and spends little? Taiwan might be a standout in a lack-luster group.

    Like or Dislike: Thumb up 0 Thumb down 0

  42. john personna says:

    @Ben Wolf:

    OK, so Ben does go the other way … but certainly countries with high spending are not all happy.

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  43. Ben Wolf says:

    @john personna: Certain people refuse to learn anything from the massive experiment in austerity economics Europe is running. Even the IMF acknowledges fiscal multipliers are much higher than austerians had assumed:

    he main finding, based on data for 28 economies, is that the multipliers used in generat- ing growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.

    This means that for every $1 spent by our government there are up to $1.7 spent in the private sector, i.e. government spending is a net economic benefit.

    http://www.imf.org/external/pubs/ft/weo/2012/02/index.htm

    Like or Dislike: Thumb up 2 Thumb down 0

  44. Brummagem Joe says:

    @john personna:
    That’s because making comparisons across the entire list is ludicrous…..who would compare Albania with Sweden?

    Like or Dislike: Thumb up 0 Thumb down 0

  45. Brummagem Joe says:

    Reagan won the battle on taxes? I guess this is why he subsequently imposed no less than 11 tax increases of one sort and another in order to claw much of it back……some of them regressive btw which shifted the tax burden onto the middle class…..and his two successors one Republican and one Democrat had to ratchet up taxes to dig us out of the huge fiscal hole he left. Bush then did a supply side encore and we’re now engaged in digging out of the huge hole he left. If this is JJ’s definition of winning I’d hate see his definition of losing.

    Like or Dislike: Thumb up 1 Thumb down 0

  46. john personna says:

    @Brummagem Joe:

    Of course, and that’s my point. Are there any patterns there?

    (I suspected that countries with somewhat matched tax and spending might be happy, independent of level, but the top 10 on “match” was again a mixed bag. By that measure the US was 107th by the way. We have quite mismatched tax and spending levels.)

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  47. Brummagem Joe says:

    The spam guard keeps rejecting links to the OMB historicals so you’ll just have to take my word for these numbers but if you don’t you can always google OMB and confirm them. From the mid sixties when the great society legislation was passed which materially affected the shape of the federal budget (which is why it’s relevant) total federal outlays have been generally been in a fairly narrow band of 18-22% of GDP. No prizes for guessing when the notable exceptions occurred. Revenues over the same period have averaged around 19% of GDP thus for most of time we’ve been financing deficits around 2.5% of GDP which are manageable and indeed desirable. We need to get back to this kind of balance. In fiscal 2012 the deficit is running just over 24% and is forecast to come down to mid 23′s in f2013 and the mid 22′s for the four years thereafter. Given the boomers it’s clear expenditures are likely to remain at the high end of that 18-22% range that prevailed for most of 45 years so revenue needs to be around 20% of GDP ……hardly wildly different from most of the post 1965 period. It’s currently running just under 16% of GDP so growth alone will not get you there JJ which is why tax rates need to rise and as it’s clear they are going to one way or the other.

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  48. Brummagem Joe says:

    @john personna:

    Of course there are patterns if you compare apples with apples. The US has to be compared with its peer group just as Albania does and our peer group is the developed world.

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  49. al-Ameda says:

    The fact is, Americans, collectively, are going to have to leaver adolescence behind and come to terms with the fact that they (we) are going to have to pay for the government we have, and that we want. Our tax rates are at modern historical lows.

    Can there be efficiencies realized? Of course. Will such efficiencies make a significant difference in our deficit situation – not as much as adolescent American voters believe – e.g. eliminating foreign aid, cutting PBS funding, and so forth will not make a difference at all.

    Do we want a strong defense, veterans benefits, maintained interstate highways, air transportation safety, strong environmental regulations for clean air and water” Or, Pell grants for college education, significant funding of scientific research, a strong space sciences program, medicare, social security, support of tax deductions/benefits for mortgage interest and charitable giving? If we do, we are going to have to pay for it, and stop the pissing and moaning.

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  50. C. Clavin says:

    Yeah….we’re still taking economic advice from a guy with Alzheimer’s…and we still mis-interpret the lesson. Reagan cut taxes, then raised them…grew Government…and exploded the debt. The only thing that saved him was Carter policies…oil de-regulation and Volker.

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  51. john personna says:

    @Brummagem Joe:

    Name the peer group. I expect wide variation within it.

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  52. anjin-san says:

    @ Jenos

    “It feels like the harder we work, the more they take from us”

    They took, what, 4K from you last year? That seems pretty reasonable considering what you get for it. Stop whining. It’s not the governments fault that you are not more successful.

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  53. Davebo says:

    @Dave Schuler:

    I might add that Reagan might have won the tax debate but, never a detail man, he did it by losing the budget debate rather catastrophically.

    Which budget debate do you refer to here? The budgets Reagan submitted that were reduced or the 2 of 7 he submitted that were increased?

    The myth of Ronnie is certainly strong even if the facts are ignored.

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  54. Brummagem Joe says:

    @john personna:

    I named it…..the “developed world” which do I really have to explain consists of probably about 18 European nations, the US, the rest of the Anglophone world Canada, etc, Japan, South Korea, Singapore, probably a few south American countries, and I may have missed a couple that are all broadly similar in terms of economic systems, levels of freedom and education, etc etc.

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  55. Pharoah Narim says:

    Reagan succeeded in proving there is a point of diminishing returns after which–further tax cuts are an exercise in self immolation.

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  56. john personna says:

    @Brummagem Joe:

    This is actually pretty important because a false sense of uniqueness comes from the right. Perhaps others have a false sense of conformity. Let’s look at “developed nations.” The G8 as good a list as any. What are their spend levels per GDP?

    France 52.8, United States 38.9, United Kingdom 47.3, Russia 34.1, Germany 43.7, Japan 37.1, Italy 48.5, and Canada 39.7

    Now, if those are all correlated with prosperity, a list of nations with similar spending should be just like those …

    Iceland 57.8, Latvia 38.5, Ukrane 47.3, Lebanon 34.2, Poland 43.3, Bulgaria 37.3, Guyana 48.6, and Seychelles 39.9

    In other words, “developed countries” do not cluster on spending per gdp, and less developed and/or troubled nations actually have similar variation.

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  57. Andre Kenji says:

    @Brummagem Joe: I named it…..the “developed world” which do I really have to explain consists of probably about 18 European nations, the US, the rest of the Anglophone world Canada, etc, Japan, South Korea, Singapore, probably a few south American countries

    There is no South American country than can be really considered developed. Argentina is Argentina, Chile has extreme levels of inequality and other social problems, Brazil has lots of typical emerging world problems.

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  58. Andre Kenji says:

    @john personna: Government spending means nothing. How the government spends the money is the real thing. A problem noted here in Brazil is that there is a large Public Sector, but that most of the people are working in Administrative Functions, not working as teachers or cops.

    The big difference between government spending in Germany and in Greece is precisely that: the Germans spends a big deal of government money perfecting their manufacturing sector while the Greeks simply spent a big deal of money without developing their economy.

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  59. Tsar Nicholas says:

    If Reagan “won” the tax debate I’d hate like hell to see what would have happened to us if he had lost it.

    Under Reagan various taxes were hiked up to enormous extents. The payroll tax was increased. That’s a direct tax on hiring and a direct tax on the middle class too. Separately income taxes also were hiked on the middle class via elimination of what at that time were very popular deductions, e.g., credit card interest.

    Given the left-wing slant of the media-academe cabal it’s not surprising that this issue constantly is phrased in terms of the tax side of the equation. But the reality is that the problem is on the spending side. It started in earnest with LBJ’s endless quagmire of the “war on poverty.” Since then not all that much has changed. The federal government is way too big and it spends far too much money. Now we’re reaping the consequences.

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  60. Brummagem Joe says:

    @Andre Kenji:

    I’d have said Chile, Colombia, Uruguay probably slip into the first world category they’re quite as developed as some countries on the periphery of Europe. It’s generally understood that the world is divided into first, second and third world countries and what the composition of those groups are although there’s probably some debate on the margins and of course it’s not static. And unless you’d noticed the US has extremes of inequality and other social problems but it’s unquestionably a first world country.

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  61. Brummagem Joe says:

    @john personna:

    Who ever said second world and maybe some third world countries didn’t have high levels of public expenditure relative to GDP. That’s not the point Ben was making. Comparing the United Kingdom with the Ukraine whose numbers are the same is ludicrous. And the first world extends far beyond the G8 countries. You can’t measure happiness of course because it’s an abstraction but you can measure quality of life using various data points like life expectancy, poverty levels, pollution, access to healthcare, freedom, etc etc. And to make such comparisons valid you have look at the peer group and our peer group is the first world.

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  62. Rob in CT says:

    There are two arguments here: the overall amount of money the gov’t raises via taxes and “who pays.”

    As JP has been trying to point out, the tax burden was shifted downward in the past (this includes state & local spending, of course, but it’s not like the feds are disconnected from that). That’s the “who pays” element, and many of us have come to the conclusion that it was poor policy. Add in that revenue as a % of GDP is relatively low at this point, and I see a need for tax reform. I strongly doubt it will be tax reform that especially pleases me, since I hold minority views on a number of topics (e.g. taxing inflation-adjusted cap gains at income rates and strengthening the estate tax).

    Much of the screaming about taxes has to do with the fact that a lot of well-off folks do indeed think “Reagan won.” Tax policy has been quite favorable toward them for decades now, and the present situation (people arguing that the tax burden needs to be shifted back upward) just plain alien to them. To which I tend to respond boo-effing-hoo, but then that’s (some) familiarity breeding contempt for you.

    Economically: not all tax cuts are created equal. If you cut the taxes of a person who is, shall we say, income-constrained, you are likely to get more spending (or a decrease in household debt, which is also good, if less obviously so in the short term). If you cut my taxes, I stick it in the bank or buy some more stock… and the simple fact is that we are not being restrained by a lack of investment capital. To borrow a phrase, in the present crisis, lack of capital is not the problem.

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  63. john personna says:

    @Brummagem Joe:

    You lost the thread there. I was responding to Joe R, and making the point that spending level, as a percentage of GDP, does not correlate with success:

    I don’t see a uniform relation between healthy countries and spending. Sweden and Denmark are healthy countries that spend a lot. Hmm … who would you actually choose on that page as a country which is healthy and spends little? Taiwan might be a standout in a lack-luster group.

    We all agree with that, right?

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  64. john personna says:

    @Andre Kenji:

    Exactly. “Doin’ it right” is important, but that is more a detail thing than a top level spending issue.

    American conservatives thinks that “right” is just “spend less,” which is not a super pragmatic outlook.

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  65. john personna says:

    (In the past American liberals were less pragmatic and just wanted to “spend more.” That is less common now. Though, on education, green energy, and bullet trains they are a little indiscriminate.)

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  66. Brummagem Joe says:

    @john personna:

    I don’t think I lost the thread at all. I just pointed out that you were erroneous in using only public expenditure as percentage of GDP as a comparator of “happiness” because there many other factors at work and that for a comparison to be valid you have compare roughly like societies…..or had you forgotten you said this?

    “OK, so Ben does go the other way … but certainly countries with high spending are not all happy.”

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  67. john personna says:

    @Brummagem Joe:

    You brought in the word “happiness,” not me.

    I think you made a dumb objection and have just been moving the goalposts ever since.

    As it happens, I think you are wrong about there being no measure for it. I believe Daniel Gilbert’s method and rationale:

    How is it possible to measure something as subjective as happiness?

    Measuring subjective experiences is a lot easier than you think. It’s what your eye doctor does when she fits you for glasses. She puts a lens in front of your eye and asks you to report your experience, and then she puts another lens up, and then another. She uses your reports as data, submits the data to scientific analysis, and designs a lens that will give you perfect vision—all on the basis of your reports of your subjective experience. People’s real-time reports are very good approximations of their experiences, and they make it possible for us to see the world through their eyes. People may not be able to tell us how happy they were yesterday or how happy they will be tomorrow, but they can tell us how they’re feeling at the moment we ask them. “How are you?” may be the world’s most frequently asked question, and nobody’s stumped by it.

    There are many ways to measure happiness. We can ask people “How happy are you right now?” and have them rate it on a scale. We can use magnetic resonance imaging to measure cerebral blood flow, or electromyography to measure the activity of the “smile muscles” in the face. But in most circumstances those measures are highly correlated, and you’d have to be the federal government to prefer the complicated, expensive measures over the simple, inexpensive one.

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  68. Brummagem Joe says:

    @john personna:

    “You brought in the word “happiness,” not me.”

    Er…..no…..I was merely responding to your use of the term and the context in which it was employed although as I subsequently explained I think it’s innapropriate despite the assertion it can be be measured by giving eye tests to the entire population of the world. Nor have I moved any goalposts. Having lied you then start throwing ad homs around as you often do whenever anyone questions your assertions. Byee.

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  69. john personna says:

    @Brummagem Joe:

    Look, my point was that across the worlds nations, all of them, there was no correlation or pattern between fraction of government spending in GDP and outcome. I used a lot of words for outcome. I started with “healthy.” I used “prosperous.” And in that sentence with Ben I said “happy” meaning outcomes.

    But you know what? From my side, saying there is not pattern, that’s fine. I can be general.

    On the other hand, if you are actually arguing a PATTERN you have to show it. You can’t just say “developed nations” blah, blah.

    If you were as good as you think you are you’d have already shown a scatter plot, and shown how you can distinguish successful countries (by WHATEVER measure) from unsuccessful ones by spending level alone.

    As far as I’m concerned though, you’ve already lost that, because we know the G8 countries are all over the map in spending, and many unhappy(!) countries share the same scatter of levels.

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  70. Andre Kenji says:

    @Brummagem Joe:

    I’d have said Chile, Colombia, Uruguay probably slip into the first world category they’re quite as developed as some countries on the periphery of Europe.

    All these countries still have a lower GDP per capita than even Greece or Portugal. Colombia still has a low GDP per capita, Chile has a insanely high Gini index.

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  71. Brummagem Joe says:

    @Andre Kenji:

    Spare me the per capita games. We don’t judge the Chinese or Indian economy on the basis of per capita income but absolute size. And do you mean all or all excluding Columbia? And have you ever been to any of these places? They’re entirely modern countries in fact impressionistically they look better than Russia.

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  72. john personna says:

    @Andre Kenji:

    I feel your pain.

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  73. Brummagem Joe says:

    @john personna:

    Blather for substance…..it was ever thus

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  74. john personna says:

    @Brummagem Joe:

    Joe, we were discussing the health, success, prosperity, and happiness of nations.

    In that context, you said “Spare me the per capita games.”

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  75. john personna says:

    (If I didn’t strongly suspect that Drew and Joe were just left and right handed sock puppets … I’d say put them in a cage match somewhere, far from the rest of us.)

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