Wednesday, October 17, 2007

Interesting Tax Chart

I came across this chart while patrolling my normal rotation of economics blogs today:

(I know it's hard to read--if you want to look at the clearer version, click here.)



It shows that since Harry Truman, every Republican has left office with a lower tax burden as a % of GDP than when he took office, and every Democrat just the opposite.

The most optimistic view: Republican policies keep taxes low and spur the economy. Another view: Republicans have enough understanding of economic cycles to make tax policies that do not outpace the growth of the economy. An unlikely view: total luck.

It's easy to imagine a coincidence explaining this phenomenon over a short amount of time, but after 60 years, I think we are establishing a pattern.

4 comments:

Josh Cohen said...

Hi Brian,

As a fellow economics major I appreciate your analysis of politics from an economic viewpoint.

The tax chart clearly shows what you say, that every Republican president since Eisenhower has left office with a lower tax burden as a % of GDP then when he took office, and every Democrat just the opposite. But the Republican paradigm that lower taxes=less government=better for the economy doesn't necessarily hold true. If you're going to use this chart about taxes to conclude that Republican administrations favor more limited government spending, you need to examine more than just taxes. You also need to look at government spending, and specifically how government spending relates to taxes. In other words, is government spending within its means?

The chart from your October 15th post gives a fuller picture because it shows the relationship of government taxes to government spending. That chart shows that federal taxes and spending hovered around each other throughout the 1950s and 1960s. Then, in the 1970s, federal spending really started to outpace taxes. Deficit spending hit its stride in the 1980s. Only when Bill Clinton became president did the federal government start to address this problem by bringing spending and taxes into balance.

The chart shows that Clinton's 1993 deficit reduction plan was successful because it both reduced spending and increased tax revenues. Finally, by 1998, after two decades of deficit spending, the federal government was once again spending within its means. For the last two years of Clinton's administration, we started to chip away at our huge national debt.

My point here is that it only tells half the story to look just at taxes. If we really want to see how responsible our government is with our money, we need to examine whether government is paying for itself, like it did under President Clinton, or, if it is spending beyond its means and offering taxpayers short-term tax relief while foisting debt onto the next generation.

I like to point out to my Republican friends that as much as they like to criticize Democrats for being "tax-and-spenders," it more responsible to "spend and tax" than to "spend and borrow." If we're going to spend money today, let's find a way to pay for it today. Let's not put it on a credit card and make the next generation pay for it. When my three-year old daughter becomes an adult and is raising her own family, I don't want her to see half of her federal taxes go towards paying down a debt that our generation incurred.

I enjoy reading your blog. Keep it up.

Josh

PAUL FOER said...

I agree with Josh. I think that you have some serious ideological blinders on Brian, and you are using charts and raw data to support a pre-dtermined worldview. You could find ten economists to deduce something different from the same chart. Josh's points about deficit spending are especially important.
This issue is so vastly more complicated and full of nuances that it does a disservice to readers to simpoly espouse a partisan viewpoint. Okay--you are against taxes and government spending! Fine. You support Republicans. Fine! bBut let's not kid ourselves that boiling down a few charts or some data really tell the whole story that we as citizens need to know. If your number one, all encompassing a-priori issue is low taxes and limited spending, and laissez faire government, and we know that, why keep hammering home these points?

Brian Gill said...

Guys,

Good comments all.

Josh I'm happy to hear you were an econ major--I was happy to vote for you for county to council but it gives even more validity to that decision!

Anyway, you guys are right--the chart is not a coronation of any policy philosophy. You'll notice I didn't say anything like "This is what I believe to be the absolute truth"...a little prodding to encourage comments like these was all I was looking for.

Spending and taxing is indeed better then spending and borrowing--one needs to look no further than social security--but my solution would be to re-evaluate what we determine is necessary spending and certainly to reduce that.

Wartime and spending mandated by congressional statute also limit the impact a chief executive can have on a budget.

But hey, from time to time I think it's OK to be a 'company man', lest the company finds a better employee!

Brian Gill said...

Oh, and Paul, isn't the point of these blogs to keep hammering home the things you believe in? We both do it all the time. Just because somebody has heard the argument once doesn't mean it's not useful to hear it again.