Tax cutting your way to the presidency

Are your taxes too high? When Gallup asked that question in April, tax month in the US, 46% said they were.

An additional 47% said their taxes were “about right.” Just 3% said their taxes were too low.

This campaign season reflects that result. Mitt Romney, the Republican candidate, is offering a 20% tax cut for everyone. Given the mood of the conservatives in the US today, that may not surprise you.

But even President Barack Obama, who is routinely described as a socialist by his opponents, is peddling a plan under which 99% of Americans would pay less than they did under the last Democrat in the White House, Bill Clinton.

This bipartisan agreement that the overwhelming majority of Americans should pay lower taxes than they did in the 1990s is remarkable for many reasons. For one thing, we are constantly hearing — and it is true — that US politics is more polarised than ever. But unless you are a member of the 1%, on this core issue there is a lot more consensus than you might think. Political strategists on both sides, it turns out, know how to read poll data.

But the really surprising thing about the no-more- tax consensus is how much of an outlier it makes the US compared both with the rest of the world and with itself in recent history. When it comes to foreign policy or to global economic dominance, American exceptionalism may indeed be in jeopardy. But when it comes to taxes, the US is quite different from most other Western industrialised economies.

According to the IMF in 2011, among the world’s 30 leading Western economies (plus Japan), only in New Zealand and in Japan was government revenue a lower share of gross domestic product than in the US. Countries like Australia, Estonia, Ireland and Switzerland, which tend to favour low taxes and a small state, have government revenue that accounts for more of GDP than does the US.

The Internal Revenue Service is relatively restrained, too, compared with recent history. In 1945, at the close of World War II, federal tax receipts were 20.4% of GDP (Expenditures, by the way, were 41.9% percent, putting the federal budget deficit at 21.5%, compared with 8.7% in 2011).

In 1952, the year the Republican Dwight Eisenhower was elected president, federal government revenue was 19% of GDP. In 1988, the last year of Ronald Reagan’s transformational conservative presidency, the federal tax take was 18.2% of GDP.

Compare those figures with that of today, when a Democrat is in the White House, nearly half of Americans think their taxes are too high, and both parties are promising to keep taxes low for all, or, in the case of the Democrats, 99% of Americans: In 2011, government revenue was 15.4% of GDP, lower than it was at any time during the Eisenhower or Reagan eras.

Like anorexics, who think they are grossly fat when they are very thin, the American body politic is suffering from a national version of body dysmorphia, with nearly half the country believing taxes are high, when they are comparatively and historically low.

Thomas E. Mann, the Brookings Institution scholar and co-author of an influential new book on the polarisation of US politics, traces American thinking about taxes to the success of conservatives, particularly of the anti-tax crusader Grover G. Norquist, in steering the national conversation.

“This is more of an elite phenomenon,” Mann said. “It’s ideological. It’s tribal now because of the Grover Norquist taxpayer pledge. It’s as if Republicans, even if they think in more pragmatic terms, are not allowed to even consider raising taxes and certainly should be pushing at all times to cut taxes further. ... It’s become Scripture.”

“One can’t talk rationally or on any evidence-based discussion of tax policy,” he said. “It’s assumed cutting taxes always does good.”

Mann wishes the country could have a more “rational” and “evidence-based” discussion about taxes. But perhaps the problem is the opposite.

The Democrats may have lost the debate about taxes in the US not because the country gave up on reason, but because the left gave up on politics.

Conservative arguments for low taxes are sometimes coached in technocratic terms — the supply-side view that low taxes will mean higher growth for everyone — but the right has never been shy about talking about tax policy in terms of values as well.

Low taxes are part of the bigger fight for personal freedom and a small state. The left, by contrast, has been more reluctant to make the case for higher taxes as the worthwhile price of better public services and a stronger social safety net.

But the IMF’s international comparison suggests that taxes really are as much the domain of the politician and the moral philosopher as they are of the economist and the accountant.

Some economically successful countries that believe in a strong state levy high taxes, like Germany or Sweden. Some economically successful countries believe in a smaller state and levy lower taxes, like Australia, and, yes, the US.

Meanwhile, in economically stagnant Japan, government revenue is an even lower share of GDP. than it is in the US, while in struggling Spain it is higher, although still lower than in Canada or Germany.

Leaving the tax debate to the technocrats is tempting, but Norquist has a point. The level of taxes and therefore the size of the state is chiefly a political choice, and it is one the left in the US is too scared to address head on.

— Reuters


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