Conservatives are agog over Obama’s inept response to Obama’s 17-minute, 2,500-word response to woman’s claim of being ‘over-taxed’. It’s a hot topic; high taxes are the heart of the Tea Party Movement.
But are we over-taxed? A few simple graphs give a decisive (and unhappy) answer.
- Can we cut expenditures to balance the budget?
- Are taxes too high?
- A conclusion, and where to go for more information
(1) Can we cut expenditures to balance the budget?
… Kudlow imagines that a pay cut for federal employees could have a huge impact on the deficit, when in fact it would be trivial. Two things: it should have been obvious on general principles that Kudlow was talking nonsense. The basic picture of the federal government you should have in mind is that it’s essentially a huge insurance company with an army; Social Security, Medicare, Medicaid — all of which spend the great bulk of their funds on making payments, not on administration — plus defense are the big items. Salaries aren’t.
But the Kudlow picture is nonetheless a key part of conservative imagery; the idea of vast rooms full of government employees doing nothing productive is central to their vision of painless spending cuts. The fact that it’s not remotely true is irrelevant; they want it to be true, and that’s enough.
Closing the entire government – except for Defense, Medicare, Medicaid, and Social Security — would not balance the budget. As shown by this graph from “Fiscal Policy Choices“, Doug Elmendorf (Director, Congressional Budget Office), 8 March 2010:
(2) Are taxes are too high?
Taxes are at post-WWII era lows. This graph from The Skeptical Optimist shows personal taxes (Federal, State, local) as a percent of GDP — just before the election. Taxes/household income is a better metric, but this works. (source data here). Plot the last five quarters on the graph.
- 2008 – Q4: 10.0%
- 2009 – Q1: 08.4%
- 2009 – Q2: 07.7%
- 2009 – Q3: 07.5%
- 2009 – Q4: 07.4%
Right now Federal government revenue is a record low fraction of GDP. If the current tax cuts are extended, plus continued limits on the alternative minimum tax, revenue will return to average levels by 2020. As shown in this graph, also from “Fiscal Policy Choices“, Doug Elmendorf (Director, Congressional Budget Office), 8 March 2010
It’s an odd time to be complaining about too-high taxes. Some people are difficult to please. As with the Tea Party movement, this woman complains about her taxes — but does not offer to have her government benefits reduced. We like government; we just don’t want to pay for it.
(3b) Other posts about American’s delusions about government finances
- A look at our government’s debt – rising because we like to spend, 29 December 2009
- The Tea Party movement develops a platform. It’s the Underpants Gnomes Business Plan!, 8 March 2010
- See the very essence of the US government’s financial problems (clue: it’s us), 2 April 2010
Originally published at Fabius Maximus and reproduced here with the author’s permission.
Opinions and comments on RGE EconoMonitors do not necessarily reflect the views of Roubini Global Economics, LLC, which encourages a free-ranging debate among its own analysts and our EconoMonitor community. RGE takes no responsibility for verifying the accuracy of any
Comments are closed.