Krugman’s on the rampage against the tax cut, and he’s got the Financial Times on his side. He claims we were getting a great deal on taxes already:
Once the new round of cuts takes effect, federal taxes will be lower than their average during the Eisenhower administration. How, then, can the government pay for Medicare and Medicaid — which didn’t exist in the 1950’s — and Social Security, which will become far more expensive as the population ages? (Defense spending has fallen compared with the economy, but not that much, and it’s on the rise again.)
Gee, in how many ways is that deceptive? Here’s a few:
Federal income taxes don’t pay for social security, social security taxes do, and they were up to 6.8% of GDP in 2002 from 2% in 1955. During the Eisenhower Administration, we were still paying for WW II, a real war that took longer than 3 weeks to win. Individual federal income taxes averaged 7.7% of GDP during Eisenhower, and they were 8.3% in 2002. After this tax cut, they’ll still be higher than they were during Eisenhower. The big growth in taxation since the ’50s has been at the state level – rising from 5% of GDP in 1947 to 9.6% today. States are in trouble, and many will need to raise taxes soon, which will more than gobble up the latest round of federal tax cuts. Percentage of GDP isn’t the best way to measure tax load, because of the effect that capital gains – not a part of the GDP – have on tax receipts. The highest level of taxes as a percentage of GDP was 10.3% in 2000, higher even than in 1944. Before WW II, federal income taxes were below 1% of GDP, so we’re at very high levels historically. This is all on account of the concentration of power in Washington made possible by the New Deal and some creative work by the Supreme Court since the 1930s.
Generally speaking, I’d rather that Sacramento spend my tax dollars than Washington. That’s not because I like the ruling party there better, it’s because it’s closer to home and more accountable; it’s also consistent with federalism. Some would rather that Washington spend them; but who wants to pay rising taxes at both the state and federal levels?
I don’t.
Source: Congressional Research Service report.
UPDATE: Meanwhile, back in the real world, the California Legislature is preparing to raise taxes on income, sales, tobacco, and cars:
…the Davis budget proposal also includes a half-cent sales tax increase to repay the deficit bonds along with increases on cigarette taxes and income taxes for individuals earning more than $150,000 and couples whose combined salaries exceed $300,000.