Taxes, Government, and the Good Life, Part 2

by Linda Beale

Taxes, Government, and the Good Life, Part 2

In yesterday’s post, Taxes, Government, and the Good Life, I noted the “long-term position of the GOP” in favor of downsizing government, which can be seen, at least in part, as a way to justify the GOP obsession with cutting taxes on the wealthy and on corporations (mostly owned by the wealthy).  Worth exploring in that context is Eduardo Porter’s article entitled “The Case for More Government and Higher Taxes,” NY Times (Aug. 2, 2016).

Porter starts by noting the radical shift in the way Americans think about government.  “Americans once appreciated the government that serves them. That’s long gone.”  He draws on research by the Pew Research Center showing that 4 of every 5 (or more) voters have said in the last 6 years that government makes them feel frustrated or angry.

That anger with government has become extraordinarily visible in this election season as one of the candidates for president has seemingly fed on the distrust and hate of a government whose leader’s face is different from the majority white population.  Most of us have seen this anger on the screen during the GOP convention, as Trump supporters–mostly white (only 18 out of almost 2500 delegates were black)–expressed their frustration with the societal changes that they see as leaving them behind and creating a world that they don’t like.  On the right, that is, the frustration with government seems to morph easily into vitriol, as Trump supporters openly condemned blacks and used violent expressions to talk about the first female presidential nominee of a major party, Hillary Clinton.  (See, e.g., the video below “Unfiltered Voices from Donald Trump’s Crowds”–warning: there is offensive speech here.)

Americans once understood that government allows people–through taxes, through voting, through volunteering–to create public institutions that could never exist if each one of us had to do it alone.  Through government, we citizens as taxpayers can accomplish projects much  larger than ourselves.

But the shift that Porter mentions has  occurred over the last few decades, due, in large part, to the funded effort by various “think tanks” and high-powered, wealthy individuals in support of a larger goal of maintaining very low regulation on Big Oil, Big Pharm and other Big Business and ensuring very low taxation on rich individuals and the corporations they own and manage.  The constant repetition of mantras that denigrate government persuade Americans that, as Reagan said while serving as the most powerful government leader in the world, “Government is the problem” or, as Rush Limbaugh said, it should be downsized until it can be drowned in a bathtub (paraphrasing).  We constantly hear from the Fox News bloviators that the growth of government stifles the economy, that private enterprise is ALWAYS better than government at doing any job, that public employees should be fired–or at least not allowed to form unions that give them strength in negotiations, etc.  Most of these statements appear without support–those on the right simply presume them to be true and are not very willing, in my experience, to delve into the actual facts to see if they support the presumption.  And the push for deregulation and tax cuts for the benefit of the rich continues apace.

As we approach this November election, though, we should ask ourselves what evidence there is to support that mantra.  Is it just a way to ‘brainwash’ voters into voting against interest?  Is it just a way to ensure that the elite 1% continue to be able to get Congress to enact laws that favor them?   Is it just a way to convince Americans that regulation is bad because the 1% doesn’t want their ever increasing profits to be reduced one whit by fair wages sharing productivity with workers, or regulation that would protect the natural beauty of this great country while providing for a more sustainable economy?

Porter suggests a new book as a worthwhile reference on the topic:  How Big Should Our Government Be?, by Jon Bakija, Lane Kenworthy, Peter Lindert, and Jeff Madrick.  The authors, he notes, make clear the value of government and suggest that there are four important  tasks for government facing us now.

“A national instinct that small government is always better than large government is grounded not in facts but rather in ideology and politics,” they write. The evidence throughout the history of modern capitalism “shows that more government can lead to greater security, enhanced opportunity and a fairer sharing of national wealth.”

“The scholars laid out four important tasks: improving the economy’s productivity, bolstering workers’ economic security, investing in education to close the opportunity deficit of low-income families, and ensuring that Middle America reaps a larger share of the spoils of growth.”

The article includes a good graphic, available here, showing the importance of government to quality of life.  Countries that have increased tax revenues as a percentage of GDP have achieved  better GDP growth than the United States, which has enacted numerous tax cuts and kept government extraordinarily small (and also less innovative). As the blurb for the graphic says,

“Despite arguments that Big Government hinders economic activity, many countries where government has grown the most have also experienced stronger economic growth. Governments have grown across most industrialized nations — raising more taxes over time to offer more public services. In the United States, by contrast, the government remains virtually as small as it was 50 years ago.”

Readers will want to look at the graphs accompanying the Porter article, available here, showing GDP growth versus tax revenue as a share of GDP from 1960 to 2013, and the change in tax revenue as a share of GDP from 1965 to 2014 for most OECD countries.   (I was unable to reproduce them here, though the black point in the left graph below is the United States, and the thick black line in the right graph below is the United States.)  These figures clearly show that the economic growth that the right claims to want to produce is in fact highly correlated with more government spending and higher taxes as a percent of GDP.  Of course we want the taxes to be reasonable and the spending to be the right kind–public infrastructure and human capital, basic research that supports biomedical, technical and other innovations, etc.  But blanket statements that smaller government is always better, that private enterprise always does things better than government, or that ordinary Americans are better served by “getting rid of” regulations developed to protect people and our environment–those kinds of ideological dogmas are simply ungrounded in fact.

taxesrevenuecrossposted with ataxingmatter