Higher Tax Rates Won't Support Entitlement State

By Barone, Michael | Examiner (Washington, D.C.), The, December 5, 2012 | Go to article overview

Higher Tax Rates Won't Support Entitlement State


Barone, Michael, Examiner (Washington, D.C.), The


The "fiscal cliff" negotiations seem to be foundering on Barack Obama's insistence on higher tax rates on high earners and House Republican leaders' insistence on opposing them. The president believes he has a mandate from voters for his position, and House Republicans believe they have a mandate from voters for theirs.

The real argument here is over the size and scope of government. Under Barack Obama, federal outlays -- the technical term for federal spending -- have increased to 24 and 25 percent of gross domestic product.

That's a higher level of federal spending than in any year since 1946, when we were demobilizing after World War II. And the Obama budgets envision federal spending to continue at such levels more or less indefinitely.

This is an inevitable result, some Obama backers argue, of our aging population. Spending for entitlement programs for the elderly - - Social Security and Medicare -- are on a rising trajectory, and so the federal government simply must absorb a higher percentage of the economy than in the last two-thirds of a century.

Let's adjust the trajectory, House Republicans argue, by reforming the entitlements. Obama has given lip service to this idea -- but has offered no specifics.

He seems to be paying attention to those Democrats who oppose any changes in entitlements. Just raise taxes, they seem to say, and entitlements can keep rising as scheduled.

The problem is that, as historian Paul Rahe wrote earlier this year, "We no longer have the resources to support the entitlement state. We can certainly raise taxes, as President Obama and the Democrats intend to do, but that does not mean that in the long run we will take in more revenue -- and it is massively increased revenue that the entitlement state needs."

Rahe seems to have history on his side. To see why, take a look at the Economic Report of the President 2012, Appendix B, Table B- 79, on Page 412, which shows federal receipts -- the technical term for revenues -- and outlays as a percentage of gross domestic product for every year from 1939 to 2011, with estimates for 2012 and 2013.

Over that period of nearly three-quarters of a century, federal receipts have never exceeded 20. …

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