When
Cactus commented on the first myth from
Brian Riedl – for a moment I thought we’d discovered the true identity of the troll who calls himself Patrick R. Sullivan (or was it Roland Patrick or the host of other names he uses to attack the comment box of Brad DeLong’s blog). Riedl writes:
Tax revenues in 2006 were 18.4 percent of gross domestic product (GDP), which is
actually above the 20-year, 40-year, and 60-year historical averages … While revenues as a percentage of GDP have not fully returned to pre-recession levels (20.9 percent in 2000), it is now clear that the pre-recession level was a major historical anomaly caused by a temporary stock market bubble.
Our favorite troll makes the same claims as he tries to argue that it’s not possible to have taxes be more than 19% of GDP for a sustained period of time. Our graph shows the ratio of taxes to GDP as well as the ratio of Federal spending to GDP from 1946 to 2005. While it is true that the average tax to GDP ratio for this 60-year period is just over 18%, which was the tax to GDP ratio for 2005, there are several problems with this abuse of a 60-year average. First of all, the tax to GDP ratio was very close to 20% during both the late 1960’s and in 1981 (before the Reagan tax cut and Reagan recession) so this anomaly claim is just false. We should also note that the tax to GDP ratio exceeded 19% for the six year period from 1995 to 2001.
Also notice that until the 1970’s, Federal spending as a share of GDP typically was below 19%. In fact, it was typically below 17% of GDP during the late 1940’s and during the 1950’s. While the Truman and Eisenhower Administrations wanted to pay down the Federal debt accumulated during World War II, they didn’t need taxes to be 20% of GDP in order to do so.
What Riedl also fails to admit is that the reductions in the taxes collected relative to GDP after 1981 and after 2001 have led to increases in Federal debt, which are deferred taxes. Riedl wants us to believe that Federal spending as a share of GDP is high relative to historical standards. Well – if by historical standards include the 1920’s and the 1950’s, he’s right. But if he is referring to the period since 1970, he’s is not correct.
Finally, Riedl forgets to mention the change in the composition of Federal tax revenues. Over the past 20 years, we’ve collected more in the form of payroll contributions that in part were supposed to be establishing a Social Security Trust Fund reserve to pay for those retirement benefits of the Baby Boomers. Alas, we have been collecting less in the form of income taxes. I would expect a rightwing troll to admit this – but someone who works for the Heritage Foundation should. So why didn’t Mr. Riedl acknowledge any of this?
Update:
Max Sawicky comments on Riedl’s 10 myths by first saying it is one of the dumbest things he has seen coming out of Heritage and then this:
The real myth is that anyone over there knows what the hell they are talking
about. One reason it is stupid, apart from the economic misinformation, is the
assumption that the reader is stupid – that he cannot see through the transparent weasel logic.
In other words, it’s like most of garbage put forth by the National Review.
Update II:
Matthew Yglesias nails this one:
wonder, did they calculate the average dating back to independence in 1776 or only back to the constitution taking effect in 1789? In related developments, a twelve inch black and white television has better picture quality than a player piano and our troops in Iraq are only insufficiently equipped if you forget that the historical average indicates that soldiers typically rely on horse-drawn
transportation.
