There is an article in The Economist (see link here), in which they lay the blame for the failure to resolve the deficit reduction dispute (and the related debate about the debt ceiling) squarely at the feet of the Republican Party and their refusal to consider tax increases as part of the response to the current accounts problem. This is surprising because The Economist is normally squarely on the right side of the political spectrum with regard to fiscal and economic policy. I would go further than The Economist though. I would say that not only is the Republican Party responsible for failing to solve the problem, they are responsible for creating it in the first place. Furthermore, the lack of sophistication among the national press corps has allowed the Republicans to frame the situation as an existential crisis by making baseless comparisons between the US debt and Greece's debt. At the same time, there is very little coverage of how low our tax rates are relative to other industrialized countries and relative to our own past.
Thursday, July 07, 2011
According to The Economist article above, US tax receipts as a share of GDP is around 15%. To put this in perspective, I looked at the tax receipts data from the OECD (see data sheet here). The numbers from the OECD are a little different than those quoted in The Economist. OECD says that tax revenues as a share of GDP are at about 24%. According to the OECD, 24% is the lowest share of the national economy taken in taxes in the USA since 1965 (the first year for which data is reported in the table). What's more, 24% is among the lowest share of GDP taken in taxes for any OECD country since 1965! Only relatively poor OECD members such as Chile, Korea, Portugal and Turkey have lower tax/GDP ratios in their history. What's more, these countries' lowest tax/GDP ratios occurred when they were better considered as developing countries than wealthy industrialized countries (and in the cases of Chile, Korea and Turkey largely before they were democracies). Many of the countries that have similar or superior growth rates to the US tax their economies more heavily. So contrary to Republican rhetoric, we are not over taxed by any meaningful measure. At the same time, Republicans are also on thin ice when they argue that increasing our tax rates will undermine the overall economic health of the country.
What about our spending levels? According to Visualeconomics.com, the US government budget takes up about 21% of GDP. The Economist says that number is about 25%. Regardless of which figure you use, that's much lower than most industrialized democracies. So it is not the case that our spending per se is especially high or "out of control" relative to our peers. Again, the Republicans are distorting the real situation to make their case for protecting low tax rates the wealthy and corporations at the expense of public services that benefit society as a whole (like education, health care and infrastructure).
What about our debt levels? To hear Republicans talk about it, the United States is a global laughing stock because of our debt levels. Even if we accept the Republican premise that we couldn't solve our debt problem overnight by returning our tax rates back to the 1990s levels (27% to 29% of GDP), are we really in the midst of a crushing debt crisis? According to the OECD (see link here), our debt as a share of our GDP is at 74% for 2011. To put this in perspective, that's about the same debt level as found in Ireland, Portugal which are in fiscal crises but lower than Belgium (80%) and Japan (127%) which, because they are larger more advanced economies, not in fiscal crisis. Greek debt is at 125% of their GDP.
It's worth pointing out here that a number of countries that Republicans love to vilify for their supposedly budget busting welfare states have much better debt situations than we do with little to show for our borrowing other than a bloated military. Denmark's debt is only 2.7% of their GDP. Canada's is 33.7%. Germany's is 50.2%.
For all these reasons, I think we should think about the current situation with regard to taxes, spending and debt as a "Republican Crisis," rather than a genuine "Debt Crisis."
Posted by Raised By Republicans at 3:47 PM