More Programs, Declining Tax Rates

Wagner's Law states that as a society becomes richer, its taxes will increase. Tax rates in the U.S. had been increasing up until the last few years where taxes have stopped growing, even when demand for more government programs has been increasing. A New York Times article on the issue says:

Taxes are no longer rising. They fell to 18 percent of G.D.P. in 2008 and, because of the recession, to a 60-year low of 15.1 percent last year.

Yet our desire for government services just keeps growing. We added a prescription drug benefit to Medicare. Farm subsidies are sacrosanct. Social Security is the third rail of politics.

This disconnect is, far and away, the main reason for our huge budget problems. Yes, the wars in Iraq and Afghanistan, the recession and the stimulus have all added to the deficit. But they are minor issues in the long run. By 2020, government spending is projected to equal 26 percent (and rising) of G.D.P., mostly because of Medicare and Social Security. Taxes are on pace to equal just 19 percent.

It is apparent that we cannot have all of the government programs that the public wants without increasing our taxes so that these programs can be funded. Many other countries with government programs like the ones that are being called for such as health care have much higher taxes that what we are paying here in the U.S. Paying more taxes would also help keep our national debt from continuing to grow and becoming more of a problem.