Americans and Taxes: Pay Less, Expect More

New York Times economics columnist David Leonhardt (link below) nailed it this week in a piece on taxes and expectations.

Citizens of richer societies generally prefer more government services…. With their basic needs met, they want a military to protect them, good schools for their children, comfortable retirement for the elderly, medical care even when it isn’t profitable and a strong social safety net.

As people seek more from the government, they have been willing to pay higher taxes to secure these services and benefits.  Rising levels of taxation in the U.S. through most of the 20th century demonstrated that willingness.

Lower taxes, growing demand

However, that is not the case today:

Taxes are no longer rising. They fell to 18 percent of G.D.P. in 2008 and, because of the recession, to a 60-year low of 15.1 percent last year.

Nevertheless, we still want more:

Yet our desire for government services just keeps growing. We added a prescription drug benefit to Medicare. Farm subsidies are sacrosanct. Social Security is the third rail of politics.

Who will pay?

This has led to a growing disconnection between our demand for government services and benefits and our willingness to pay for them:

This disconnect is, far and away, the main reason for our huge budget problems. Yes, the wars in Iraq and Afghanistan, the recession and the stimulus have all added to the deficit. But they are minor issues in the long run. By 2020, government spending is projected to equal 26 percent (and rising) of G.D.P., mostly because of Medicare and Social Security. Taxes are on pace to equal just 19 percent.

The anti-taxation drumbeat of the past 30 years coupled with growing expectations of getting something for nothing are setting into play a social, political, and economic train wreck.  It will not be pretty.

Leonhardt column

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