Do We Pay Too Much in Taxes?

Bruce Bartlett has been invited to contribute to the National Review:

The question is ambiguous because it is not clear whether people are being asked about the effective rate of taxation (taxes as a share of income) or the marginal rate of taxation (that which applies to the last dollar earned). But either way, taxes are much higher than people think they should be. According to the poll, 24 percent of people think all taxes should take less than 10 percent of a person’s income. Another 43 percent think they should take less than 20 percent and an additional 22 percent of people think the tax burden should be no more than 30 percent of income. In other words, two-thirds of Americans think that 19 percent is the most anyone should pay while 90 percent think a tax rate of 29 percent should be the maximum. How does this stack up against actual tax burdens? One way to look at this is to take taxes at all levels of government as a share of the gross domestic product — the nation’s total income. In 2005, taxes came to a little over $3.5 trillion and GDP was close to $12.5 trillion, for an effective tax rate of 28.5 percent.

I guess anything that gets the numbers right represents a contribution in terms of the low standards of the National Review and Bruce is certainly right to add this forward looking statement:

Unfortunately, taxes are going up because of the vast government spending in the pipeline due to the aging of society. In the end, I think people will accept higher taxes rather than cut spending enough to prevent that necessity.

After all, not enough conservatives are admitting the deficits represent deferred taxation and the expected future increases in entitlement spending (as a share of GDP) means the fiscal imbalance will only grow if we don’t either raise tax rates or massively reduce spending. But let me toss this tidbit in – disposable income equals taxes paid minus transfer payments received. Over the long-term, net taxes must equal government purchases, which were about 19% of GDP in 2005. And if we cut entitlements to reduce the deficit, don’t net taxes rise?