Reuters's Freeland: 'Anorexic' Americans Think Tax Bite Too Heavy When In Fact It's Dangerously Thin

May 24th, 2012 4:15 PM

Reuters columnist Chrystia Freeland must have editors who don't question her judgment very much. How else do you account for this gem making it into her final draft today?:

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.

Funny she uses that analogy when the Left is hard at work convincing Americans that they are all morbidly obese and in need of national nannying about their overeating and under-exercising. At any rate, Freeland justifies her claim by noting that:

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

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 percent of Americans: In 2011, government revenue was 15.4 percent of G.D.P., lower than it was at any time during the Eisenhower or Reagan eras.

But that simply means the government is consuming less of GDP as a percentage of the economy, not that personal income tax rates are dangerously puny.

Indeed, the current marginal tax bracket scheme -- six income brackets: 10, 15, 25, 28, 33 and 35 percents-- is significantly simpler and lower than in 1952 -- 24 brackets ranging from a minimum of 20 percent to maximum of 91 percent-- but significantly higher than the close of the Reagan administration when there were just two income brackets, 15 and 28 percents.*

Using government data to adjust for inflation, a two-income family earning $50,000 in 2012 dollars would have earned $5,758.74 in income in 1952 (when Ike was elected) and $25,707.89 in 1988 dollars (the last full year of the Reagan presidency). As such, a two-income married couple filing a joint return that now pays a top marginal rate of 15 percent would have paid a top rate of 15 percent in 1988 and of 24.6 percent in 1952.

Freeland gripes that Uncle Sam is commanding too little of American economy's GDP, and yet when taxes were lower and simpler at the sunset of the Reagan administration, Uncle Sam still commanded 18.2 percent of the country's economic output.

So the substance of Freeland's complaint is all wet, but the false narrative helps to serve her call for the American Left to more boldly and openly make its emotional case to the taxpayer of the need to take more from their wallets:

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

Conservative arguments for low taxes are sometimes couched 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 I.M.F.’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 United States. Meanwhile, in economically stagnant Japan, government revenue is an even lower share of G.D.P. than it is in the United States, 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 Mr. 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 United States is too scared to address head on.

*"A 33% 'rate bubble' applied" to certain income earners, the "purpose being to recapture the revenue that upper-income taxpayers had saved by applying the 15% rate," notes the Tax Foundation, however that rate did not apply to the scenario I've used in my example.