- Posted October 29, 2008 by
This iReport is part of an assignment:
Wall Street crisis and you
Taxes and Socialism
We've been hearing a lot about becoming a socialist country. I hate to tell you, but we're already one, and have been since the end of World War II.
Our government redistrubutes over one third of our GDP and employs 18% of our work force.
I'm talking about the ENTIRE government, not just the federal government. The state and local governments have always charged more total taxes than the Fed. They have several tools to tax us with, from sales taxes to property taxes to income taxes to the tag on your car or the fine for speeding that you pay the local police department. Please note that the GDP is Gross Domestic Product, the total value of everything produced in the entire country.
Let's look at some of the numbers. To save confusion, all numbers are in billions. One billion is 1,000 million dollars.
Last year, total government revenue was $4,776 billion dollars out of a GDP of $13,743 billion, or 35% of GDP. Over 1 dollar out of every 3 that this whole country produced went to the government.
How did our government become so large, while our factories and the real industries that made us into the economic powerhouse that we used to be have slowly died?
Prior to World War II, the government spent about 17% to 20% of GDP each year.
1940: Taxes: $17.8 billion, GDP: $101.4 billion, 17.5% of GDP
That changed as the government needed massive amounts of money to pay for WW II.
1945: Taxes: $67.4 billion, GDP: $223.1 billion, 30% of GDP
Government spending did decrease after the war ended. The result was that the 1950s were prosperous.
1950: Taxes: $66.7 billion, GDP $293.8 billion, 22.7% of GDP
But it didn't last. Pretty soon, governments began to increase taxes again. By 1060, the government was taxing us almost as much as it had during the height of WW II.
1960: Taxes: $153.1, GDP: $526.4 billion, 29% of GDP
Then the Vietnam War happened, forcing the government to raise taxes to pay for the new military spending.
1970: Taxes: $321.1 billion, GDP: $1,024 billion, 31.4%
During the Vietnam War, total taxes climbed to a high of 31.8% of GDP, while unemployment rose from 3% to 8.8% before it ended in 1975.
1975: Taxes: 496.1, GDP: $1,560 billion, 31.8% of GDP
After the war ended, taxes went down a little, but nowhere close to the levels in the 1950s.
1976: Taxes: 545.8 billion, GDP 1,737 billion, 30.9%
But not for long. Despite the fact that we weren't at war, high inflation and bracket creep allowed the government to increase taxes substantially during the late 1970s, contributing to the recession from 1979-1982.
1980: Taxes: $885.6 billion, GDP: $2,727 billion, 32.5 %
Reagan continued Carter's policy of high taxes during the first two years of his Administration.
1982: Taxes: 1,078 billion, GDP: 3,228 billion, 33.4%.
in 1983, he changed tactics. Our axes were decreased.
1983: Taxes: $1,104 billion, GDP: $$3,441 billion, 32%.
This trend toward lower total taxes continued until the Bush 1 Administration. Taxes suddenly began rising again.
1990: Taxes: 1,927.4 billion, GDP: $5,735.4 billion, 33.6% of GDP.
Despite the recession in 1992, taxes remained high.
1995: Taxes: $2,464.6 billion, GDP: $7,232.7 billion, 34% of GDP.
And our taxes just kept rising. By 2000, government taxes had hit 35.5% of GDP.
1998: Taxes: $3003.8 billion, GDP: $8,679.7 billion, 34.8% of GDP
2000: 3,457.8 billion, GDP: 9,749.1 billion, 35.5% of GDP
Then Bush 2 took office and reduced taxes to about the level that they were at the end of the Carter administration.
2002: 3,388 billion, GDP: $10,398.4 billion, 32.6%
2005: Taxes: 4,017 billion, GDP: 12,347 billion, 32.5%
Unfortunately, those lower taxes didn't last. By last year, taxes under Bush 2 were just as high as they were under Clinton and Bush 1, and much higher than they were under Reagan.
2007: Taxes: 4,776.4 billion, GDP: 13,743 billion, 34.8%
Our government is the socialist part of our economy. And it has steadily increased its share of our country's income just a little more each decade for the last 60 years, until it has become the festering pool of pork that exists today.
Besides the political arguments for reducing the size of government, there are several economic ones.
I believe that any time that the government collects more than 30% of the GDP in taxes, it damages GDP and causes higher unemployment and a recession. The fact is that during Clinton's Administration, Federal, state and local governments were able to charge higher taxes without causing a recession for a few years as the internet, online sales and software industries exploded. Once they matured, those taxes caused severe damage to the system, resulting in the extremely low GDP growth in 2000-2002.
Does it matter who pays the taxes? Corporate America paid almost 50% of all taxes from the early part of the century through the 1950s. They paid about 20% of income taxes under Reagan. They currently pay 12% of all income taxes collected. There is no evidence that reducing corporate taxes even more will do any good whatsoever. When they paid higher taxes, the country didn't go into a recession; they paid much high taxes during some of the most prosperous periods in history.
The rich paid much higher percentages of taxes at various times, as well. Far from causing the system to crash, it has generally done about as well as when the poor pay a larger percent. Raising or lowering taxes for one segment of the population bears very little weight on the health of the economy as a whole. What HAS mattered is the total amount of taxes collected as a percent of GDP. Higher taxes can cause a recession. Less taxes may not cause a booming economy, but they generally herald good times, with the single exception to the rule being Clinton's presidency.
The health of the economy depends on keeping ALL governments, Federal, state AND local, small and efficient instead of the bloated barrels of pork that they have become.
By the way, we do want some socialism. There are a few cases in which pure capitalism isn't possible or desirable. I don't think anybody wants a for-profit educational system which denies service to children whose parents can't afford to pay, 15 competing power companies running electric lines all over the place, a dozen companies running competing water pipes, companies making the highways, each installing tolls for profit every mile or so, or a privately-run military. Some services are both necessary and cannot be allowed to be run as free market businesses. But the government has a hard time figuring out which services it should provide and which ones that are best left to our free enterprise system.
I believe that our government has a social responsibility to provide all of its citizens with the following:
1. Our military, keeping everybody in the country safe
2. Our educational system, giving everybody a chance to make themselves into a success
3. Our infrastructure, to give everybody access to electricity, clean water, sanitation and our highway system.
4. Our judicial and legal systems, allowing everyone to have equal access to police and the court system.
5. Our regulatory system, to insure that unscrupulous companies and individuals don't pollute the environment, provide unsafe working conditions, and to provide reasonable safeguards for everybody's health and savings. Regulatory agencies from the FDIC to the FBI, from the local beat cop to the food inspectors are necessary to our safety and security.
6. Our health care, to insure that everybody has access to basic health care, even if they don't have the money to pay for it.
7. Social Security for our elderly and disabled and, to a lesser degree, charity for our poor. We have a great responsibility to provide a reasonable standard of living for our old and disabled, who are no longer able to work, and, as a mostly Christian nation, we have a moral responsibility to provide some basic charity and compassion for the poor, especially those who are willing to try to help themselves, and those who are unable to care for themselves, like poor children and the mentally disabled.
8. Our postal system. This may not be necessary, but countries which have tried to turn them into competitive systems have generally had major problems. And it isn't an expensive item; it generally makes a small profit.
Other than those necessities, the government shouldn't try to be all things to all people. It has a few defined social responsibilities, to insure the safety of the country and provide equal access to health care, education, the country's infrastructure and the legal system. I would consider anything above and beyond that to be unnessary. If its total size could be cut back down to 20% of GDP, the entire nation would be happier.