Every developed country aspires to provide a better life for its people. The United States, among the richest of all, fails in important ways. It has the highest poverty and the highest infant mortality among developed nations. We provide among the least generous unemployment benefits in the industrial world. Not long ago one of the most educated countries in the world, the United States is slipping behind.
The reason is not difficult to figure out: rich though we are, we can’t afford the policies needed to improve our record. The politicians in Washington all know that we face a long-term fiscal crisis. By 2020, 70 million Americans are expected to be on Social Security, up from 45 million in 2000. The ranks on Medicare will swell to 64 million, up from 40 million in 2000. Virtually every economist knows that just maintaining Medicare and Medicaid benefits will require raising taxes on the middle class….
The big exception has been the United States. In 1965, taxes collected by federal, state and municipal governments amounted to 24.7 percent of the nation’s output. In 2010, they amounted to 24.8 percent. Excluding Chile and Mexico, the United States raises less tax revenue, as a share of the economy, than every other industrial country….
To a large extent, this is because we have chosen a tax system that raises relatively little revenue and inflicts maximum economic harm. Every other industrial country has a national consumption tax, which can be used to raise a lot of money without distorting people’s economic incentives. The United States, by contrast, relies mostly on taxes on labor and capital that damp people’s drive to work and invest, putting a drag on economic growth. And the tax code is riddled with preferences and loopholes that further distort people’s economic behavior.
It is tempting to blame the administration of George W. Bush for the tax shortfall. At the end of the administration of President Bill Clinton, tax revenue reached almost 30 percent of the nation’s economic output. The federal government ran a budget surplus. The Bush tax cuts sharply reduced the federal tax collection. Then the Great Recession further eroded tax revenue. And, of course, nobody wants to raise taxes in the middle of an economic downturn.
Yet Americans’ aversion to taxes runs deeper. We’ve been collecting less in taxes than other rich countries at least since the early 1970s, relative to size of the economy. But according to Gallup, only three times since the 1950s have more Americans said their taxes were “about right” than said they were “too high.” Scholars have resorted to cultural traits to explain our reluctance to pay for our government.
The imbalance between what we want and what we’re willing to either pay for or do without drives much of our budget woes these days. Until we square the circle of wants, demands and revenues, we’re screwed.