What is the correct level of taxation in America?
On Monday, the Christian Science Monitor took a hard look at the issue of taxation and provided important context for future budget and tax debates:
But here’s the big issue: There’s no level of tax revenue or federal spending that’s automatically the “right” level. Yesterday’s averages don’t tell us what tomorrow’s should be.
And most signs point toward difficult choices ahead. Entitlement programs…are taking up an ever larger share of federal spending.
Is spending “the problem”? Yes, in one sense. If federal outlays could be steered permanently back to their 35-year average of 21 percent of GDP, much of the national-debt problem would be solved.
The Monitor is correct – there is no “right” level of tax revenues. If Washington’s spending was reduced to constitutionally allowed functions, tax revenues could probably drop by 50% and still leave a balanced budget. If entitlements weren’t expected to swallow an increasing amount of federal spending for the next three generations, spending at 21% of GDP and taxing at 18% of GDP would have left us with modest, but mostly sustainable, deficits.
As it is, that is not the case. The federal government is expected to bring in somewhere between 18.5% and 19.1% of GDP’s worth of revenues in the medium-term to long-term. However, it is going to spend at least 22.9% of GDP, “on an upward trajectory” in 2023, according to the Congressional Budget Office. This means things are going to be worse in a decade than they were prior to the recession, and the decline will be exacerbated beyond 2023.
The proponents of big government like to pretend we need more taxes to cover higher spending. In fact, the opposite is true – as we lower spending, we should lower taxes. One decreases freedom and economic advancement; one advances them.