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Friday, May 20, 2011

Ever More Taxation

Recently, a friend pointed me to an article that made the rather surprising claim that "by historical standards, what we pay in federal taxes - rich, poor and everyone in between - has gone down."

Surprising, and not true.

I conveniently happened to have a table lying around that shows historical federal tax revenue. In constant 2005 dollars, 50 years ago (in 1960), federal government revenue was $631 billion. In 2010, it was $1,919 billion (i.e. $1.9 trillion) or three times as much. So by historical standards, we're paying a hell of a lot more on average.

There are more people now, so I also did the calculation on a per capita basis. In 1960 the federal government revenue per capita was $3,518, while in 2010, it was $6,215, or nearly double. Again, these are in constant 2005 dollars. I graphed per capita revenue and it basically shows relentless increases in per capita (and total) collected taxes. There is a bit of chop (i.e. the trend is not perfectly smooth), but it's definitely clear what the trend is - up, up, and up.

So while we spend about the same or less per capita for most goods and services due to increasing technology and efficiency, my question is why do we need to be taxed twice as much per person to fund government as we did 50 years ago? Why is the baseline assumption, even among tea partiers, that we should be taxed a constant percent of GDP, which means increasing taxes forever (assuming GDP keeps growing), instead paying the same amount of taxes per person over time (adjusted for inflation, of course)? Why is the base assumption that government should expand (beyond population growth) forever? Do we really need ever more taxation, ever more government regulation, ever more government intrusion, and ever more government redistribution?

Just wondering.


Bret said...

Update: I fixed the second link.

erp said...

The answer is, of course, the government doesn't need more money, it wants more money in its ever increasing lust for power.

Hey Skipper said...

Why is the base assumption that government should expand (beyond population growth) forever?

Keep in mind that GDP is, in no small part, a function of population. Therefore, taxing at some constant percentage of GDP is not completely unreasonable.

Bret said...

Hey Skipper,

GDP is a function of population. GDP per capita is not (by definition). It's GDP per capita that's expanding relentlessly.

Hey Skipper said...

Well, you did make that fairly clear in your post. Don't know why I missed it.

In this chart, my visual curve smoothing says the trend was pretty constantly upwards from 1900 - 1990, then leveled off until Medicare Part D and the recession.

I'm not sure if that qualifies as "relentless", so long as spending during the recession is temporary, like that of WWII.

Hey Skipper said...

Ooops. Not that, this.

Bret said...

Hey Skipper,

That chart is not GDP per capita. The GDP per capita chart is much more relentless.

Hey Skipper said...

No doubt, because each capita is producing much more GDP now than, say, 50 years ago. Clearly, this argues your point: just because all those capitas are individually more productive is not an argument for proportionally increasing spending.

However, it is worth keeping in mind that much of US Gov't spending consists of transfer payments -- Social Security being the prime example.

If we had recourse to the Professor's WayBack machine, forty years ago Social Security could have been changed from pay as you go to save as you go.

The heaps of money would be roughly the same, although (and it is so cute that the MAL fails to notice this) wealth distribution would be less unequal thereby. As well, gov't "spending" as a portion of GDP, no matter how sliced, would be significantly less.

Yet the intrusiveness of government would largely remain unchanged.

Zartan said...

You're absolutely right!
I find it amazing that people don't understand what "percent" or principles really are. If you have to explain these simple concepts then it's really not worth talking/arguing with that person. Problem is- seems like over 90% of the population IS that stupid!!!