There was quite a dust-up in the Republican Party this past week when Georgia U.S. Sen. Saxby Chambliss uttered the unthinkable and said he would no longer adhere to the famous Taxpayer Protection Pledge conceived by Grover Norquist, president of Americans for Tax Reform.
Chambliss was blunt in renouncing his commitment not to vote to raise taxes: “I care more about my country than I do about a 20-year-old pledge. If we do it his (Norquist’s) way then we’ll continue in debt, and I just have a disagreement with him about that.”
Now this is not particularly surprising coming as it does so quickly after President Obama’s re-election, which has sent weak-kneed, spineless Republicans hotfooting it from their principles. And it is not particularly surprising coming from Sen. Chambliss because conservative groups have already put a target on his back for his past RINO proclivities.
While it might not be surprising, it is telling. Mr. Chambliss said straight up that we must raise taxes, or we will continue in debt. It is a Democratic argument, and it is false, as most Democratic arguments are. Let’s take a look why.
Follow the conditional statement, and there can be only two possibilities to validate it. Either revenues are slumping in dramatic, irreversible fashion, and so more are needed to meet the realistic, indeed necessary, demands of the modern state, or we are held hostage by nondiscretionary spending, that is to say, we’re spending so much because we have to, not because we want to.
Implicit in the first possibility is that the money stream is historically low and not likely to recover sufficiently. In other words, it’s not just a temporary effect of the Great Recession; though that may well have exacerbated it, it’s something more permanent on the landscape.
To the left, the reason is obvious. They would say it is the economic inverse of climate change: just as over time industrialists’ excessive emissions have made the earth warmer, so too over time the rich have been paying less and less of their fair share of taxes. Not only has the tax burden shifted to the less wealthy in this view, but overall tax collections have been lowered below their historical norm. So the middle class pays more than they should for that which the government must provide, and the government must borrow the difference and charge it to future generations.
It’s all the fault of the wealthy.
But none of the material implications of that premise is true. The rich keep paying more of the taxes, not the other way around, as it turns out. According to David Wessel of the Wall Street Journal, in the 1980s, the top 5 percent of income earners paid 28.5 percent of the nation’s taxes; in the 1990s, that group paid 34.3 percent of the taxes; in the 2000s, they paid 40.3 percent of the taxes.
As of the latest data, the top 20 percent of wage earners pay 67.9 percent of all taxes, and the rich’s proportion of the tax burden increased even more during the recession. The shift in the tax liability is going in the wrong direction to support leftist crackpot theory.
Still, even if the rich have assumed more of the total obligation, that doesn’t mean overall revenue hasn’t declined steadily and precipitously. In that case, the left would say, the rich must still pay more.
But the storied revenue decline is a myth, too, both in absolute numbers and in percentages. Using 2010 dollars, the Heritage Foundation showed that federal revenues have more than tripled in the past 50 years, peaking in 2007 at a record $2.57 trillion. They continued to rise rapidly even after the much maligned Bush tax cuts took full effect in 2003.
To put it another way, in percentage format, tax collections have kept pace with the growth of the Gross Domestic Product, staying at about the same level – just under 19 percent of GDP – throughout the post-war era. Multiple tax-code changes have produced slight variations, but nothing dramatic. Tax collections totaled 18.5 percent of GDP in 1954, 18.4 percent in 1967, 18.3 percent in 1974, 18.2 percent in 1988, 18.4 percent in 1995, and 18.2 in 2007, yes, after four years of the Bush tax cuts.
The stab of the recession took some blood out of the revenue body, to be sure. As a matter of fact, collections dropped from 17.6 percent in 2008 to 15.1 percent in 2009. So while the needs of the nation remained intact and even grew as the population increased and economic pain worsened, revenue went south. To the left, this meant somebody had to bring it back, and the only ones they could think of were the most affluent.
Yet, as I have reported, the affluent already paid more and more, and then even more during the recession. The downturn beat Mr. Obama to the punch when it came to increasing the tax strain on job creators; the president simply wants to kick them while they are down.
There is no need. As the nation has slowly recovered, so has the revenue stream – it’s returning to its old levels without jettisoning the Bush-era tax cuts or otherwise raising taxes on anybody. While tax collections remained at 15.1 percent of GDP in 2010, they edged upward to 15.4 percent in 2011 and then spiked to 15.8 percent in 2012.
Of course, a recessionary drop was normal, and a steep one could have been expected given the recession’s severity. But even the 15.1 percent floor was not the lowest of the postwar period – that was 14.4 percent in 1950, at the start of America’s golden age. And the 1950 dip of 3.3 percent – about the same as this dip – was also caused by recession.
Today, this recovery is both continuing and strengthening. As the Wall Street Journal has reported, individual tax payments are up $233 billion in the last two years, or 26 percent. Tax revenues rose 6.4 percent last year, and at $2.45 trillion revenue was near a historic high.
To recap, in 2007 the nation’s revenues stood at a level comparable to the entire post-war period, and in absolute numbers had climbed to a record level. The recession represented a kick to the gut, but only a temporary anomaly. With the tax stream recovering, there’s no need to raise taxes on anyone, especially on job creators who carry the weight of the tax world on their backs.
That brings us to the other side of the equation: Spending. Federal expenditures have skyrocketed to an historic high of GDP. Everyone knows this. And it keeps racing higher. In October the federal deficit was $120 billion, or 22 percent, higher than last October. We just banked our fifth trillion-dollar deficit in a row, another first for the nation.
The question is whether the spending can be reasonably reduced without causing chaos in the land.
The general figures would suggest it can. In 1980, the government entitled about 30 percent of the population; today the figure is close to 50 percent. Nearly 110 million Americans received welfare in 2010 – that doesn’t include Medicare and Social Security – 47.1 million people collected food stamps, and the president promises even more entitlements.
All of which begs the question: Do we want to live as a nation that thrives on personal initiative but has a strong safety net to catch those who risk and fail or who otherwise fall beneath the cracks, or do we want to become a nation in which the majority of people live effectively and permanently as wards of the state?
The entitlement percentages suggest the latter, and they suggest – to answer the earlier inquiry – the nation is spending so wildly because it wants to, not because it has to. Not only can spending be reduced to meet revenues, they should be – for the sake of the nation and for those whom we supposedly spend it for.
Let’s parse the numbers more to better understand the voluntary and even reckless nature of the spending.
Take defense spending. Everyone knows there’s a lot of waste in defense. We’ve all heard about the $1,000 hammers and the purchase of weapons systems even the Pentagon didn’t want.
But, as William Voegeli, author of Never Enough: America’s Limitless Welfare State, has pointed out, spending on nondiscretionary national defense, in constant dollars, was only 42 percent higher in 2008 than in 1965. Given that the nation’s population during that period grew by 57 percent, per capita defense spending actually dropped.
Imagine that. September 11 and the exponential growth of terrorism notwithstanding, spending for security failed to keep pace with population growth. For other nonwelfare programs – corrections, law enforcement, and the like – spending during those years grew by 76 percent, a little more than population growth but not much.
Now let’s look at means-tested welfare programs, both using Voegeli’s numbers and figures from the Cato Institute for the period 1965 to 2009. In Voegeli’s calculation, welfare spending jumped by 583 percent. In fact, he said, the welfare state grew from 26 percent of federal outlays in 1965 to 61 percent in 2008.
Using the Cato Institute’s figures from an April 2012 report, federal spending on welfare and anti-poverty programs increased from $178 billion in 1965 to $668 billion in 2009, a 375-percent increase in constant dollars, while total welfare spending – including state and local – rose from $256 billion to $908 billion. On a per capita basis, Cato reported, federal welfare spending jumped by more than 900 percent, from $1,625 to $14,848.
Choose your poison; either number is astonishing. The sad part is, one can debate whether we are more secure, but the poverty rate in 2009 – and today – stands where it did in 1965. Despite a massive infusion of cash, relentlessly growing the welfare state hasn’t worked as a matter of national policy. The nation lost the War on Poverty.
None of this is to say welfare programs haven’t ameliorated some of poverty’s worst effects, but it hasn’t lifted people out of it. As a percentage of the population, there’s as much economic misery today as nearly 50 years ago, and one need look no further than hunger statistics to confirm it.
Liberals would say this proves not only that such spending is necessary but that even more is needed. But all it proves is that safety-net resources need to be spent differently, as the Cato Institute eloquently argued in its April report.
Rather than expanding programs that didn’t work from the start, and never did, rather than funneling handouts to the poor, rather than financing bloated bureaucracies wedded to their systemic failures, those resources should be channeled to initiatives that create the educational and training opportunities, not to mention the economic conditions and incentives, for people to transcend and overcome poverty.
If you have a persistent ailment, and the high-priced medicine the doctor keeps prescribing doesn’t work, what do you do? Do you just take more as the doctor wants you to, throwing ever more money away, or do you try a different protocol of treatment?
The smart thing to do is try something different. In medicine, treatments that depart from establishment orthodoxy most often cost less and prove successful – for example, the VA hospitals’ rejection of expensive specialty drugs for less costly workhorse drugs that help to render that system so successful.
And so it goes. We could unchain the doors of failed public schools, which lock so many of the poor in cells of failure, and empower families with school choice, at about the half the price of public education. We could lower tax rates and regulatory burdens to create a flow of job-creating capital into poor communities from the private rather than the public sector. We could limit the duration of benefits to disincentivize dependency.
Put simply, we don’t spend so much on welfare because we must be just; we spend when it is necessary not to – necessary to alleviate poverty and to be just, and necessary to balance the nation’s budget. We keep on spending because politicians want to – to feather the nests of bureaucrats and to contrive political constituencies.
Likewise, we don’t call for tax increases because we think more revenues are needed. We do so to prop up the unnecessary, unjust entitlements.
To paraphrase Mr. Chambliss: I care about my country more than I do about a 50-year-old failed welfare program. If we do it the Democrats’ way, then debt will increase, poverty will continue, standards of living will decline and the economy will stagnate. I just have a disagreement with Sen. Chambliss about that.